In Irrational Exuberance, Nobel prize winner Robert Shiller chronicled how markets fall in love with their own stories. Prices climb not on fundamentals but on faith, the collective conviction that the future will be brighter simply because everyone believes it will be. For Shiller, this was not just a technical problem of valuation, it was a psychological drama in which optimism becomes a kind of mass hallucination.

The late 1990s provided his perfect case study: the dot-com bubble. Companies with little more than a website and a slogan were valued in the billions. Venture capital poured into anything ending with “.com.” Analysts promised that the old rules of economics no longer applied, that profits could come later, after the “land grab.”

When the bubble burst in 2000, it wiped out trillions of dollars in market value. Yet even that collapse, catastrophic as it was, left something behind: infrastructure. The speculative frenzy financed the laying of fiber-optic cables, the expansion of server farms, and the development of communication technologies that would later power the digital economy.

The crash was destructive, but also generative, a demonstration of capitalism’s peculiar rhythm: progress through crisis.

The Crisis Engine of Capitalism

To understand why these bubbles recur, we have to look deeper than investor psychology. Karl Marx described capitalism as a system that cannot survive without perpetual expansion. Profit depends on producing more, selling more, reaching new markets, and creating new needs. Yet as productivity increases, profits tend to fall, leading capital to seek speculative outlets for surplus value.

When real economic growth slows, financial markets become the theater of imagination. Investors begin to treat the future as a tradable asset. Value is detached from production and relocated into expectation. This is what Marx called fictitious capital: wealth created not by labor or goods, but by the anticipation of future returns.

The dot-com era was one such moment. The crypto and web3 boom that followed two decades later was another. Both represented capitalism in its speculative mode, not building upon existing demand, but inventing new frontiers for accumulation.

From Dot-Com to Web3: The Cycle of Digital Speculation

After the dot-com bust, capitalism didn’t learn restraint; it simply found a new narrative. The crypto boom of the 2010s revived the same energy, this time under the banner of decentralization. Bitcoin promised liberation from central banks. Ethereum promised the democratization of finance. The rhetoric was revolutionary, but the pattern was familiar: early believers amassed vast paper wealth, venture capital flooded in, and the frenzy detached from technological reality.

Like the dot-com boom, the web3 bubble generated its own infrastructure, data centers, blockchain protocols, developer ecosystems, even as many of its most visible projects collapsed under the weight of speculation. Tokens replaced IPOs; Discord replaced investor roadshows; but the logic was the same: value as expectation, not realization.

And again, when the bubble burst, capital shifted its gaze elsewhere, this time, to artificial intelligence.

AI: The New Frontier of Exuberance

The AI boom combines the moral gravity of technological inevitability with the financial momentum of easy liquidity. Investors and corporations race to proclaim themselves “AI-driven,” often with little more than a language model API and a PowerPoint deck.

Valuations soar, fueled by the conviction that AI will reshape every industry — from law and medicine to logistics and entertainment. The narrative is self-reinforcing: because everyone believes AI will dominate, money flows into it; and because money flows into it, everyone believes it must dominate.

This, again, is Shiller’s irrational exuberance, the fusion of hope, competition, and collective delusion. But it also reflects a deeper truth Marx identified: capitalism’s crises are not interruptions of the system, but its method of renewal.

When profits stagnate in traditional sectors, capital must invent new terrains for growth. The “AI revolution” functions as both a technological breakthrough and a psychological refuge: a place where the contradictions of the old economy can be temporarily suspended in the promise of the new.

The Afterlife of Bubbles

Each bubble, when it bursts, leaves behind a skeleton that the next phase of capitalism animates.

• The dot-com crash left us the internet’s physical backbone.
• The crypto collapse left us decentralized infrastructure, identity systems, and new frameworks for digital trust.
• The AI mania is now building the computational substrate: GPUs, data centers, energy grids, model architectures, that will define digital production for decades to come.

The cycle is almost ritualistic: speculation finances innovation, the bubble bursts, consolidation follows, and a few survivors emerge as new monopolies. Amazon, Google, and Meta were the heirs of the dot-com boom; the next generation may arise from the remains of today’s AI startups.

But every iteration also concentrates power further. Each recovery tightens control over the infrastructure of the next wave. The internet’s early promise of openness gave way to platform monopolies. Crypto’s dream of decentralization was captured by centralized exchanges and speculative tokens. AI, heralded as the democratization of intelligence, is now dominated by a handful of corporations with the capital to train massive models and secure global GPU supply chains.

Capitalism’s Need for Illusion

If bubbles are destructive, why do they keep happening? Because they are functional. They provide capitalism with a story to believe in, a way to escape its own limits through narrative.

Joseph Schumpeter once described capitalism as a process of “creative destruction,” where innovation perpetually displaces the old. Yet what we see in the digital age is closer to destructive creation: value destroyed in mass to create the conditions for the next speculative surge.

In this sense, irrational exuberance is not an error of human psychology; it is the emotional infrastructure of accumulation. It sustains belief in a system that constantly threatens to collapse under its own contradictions.

Beyond the Cycle

The question, then, is not whether AI is a bubble, it almost certainly is. The real question is whether we can imagine a technological future not dictated by the speculative needs of capital, but by genuine human and social priorities.

Can AI be developed outside the logic of crisis, not as the next frontier for profit, but as a public good, a tool for collective intelligence rather than private accumulation?

History offers little optimism on that front. The railroads, the internet, crypto, and now AI, each began with utopian language and ended as instruments of consolidation. But history also shows that crisis contains possibility. Every collapse cracks open the myth that markets are rational or eternal. Every burst invites reflection on the system itself.

As Shiller warned, exuberance blinds us to risk. As Marx revealed, the risk is structural. And as each technological wave proves, the future is not just what we invent, it’s what we allow capital to turn our inventions into.

The AI boom, like the bubbles before it, is not simply a story of technology gone wild, it’s the story of a system that must speculate to survive.
Whether we treat the next collapse as another “lesson learned” or as evidence of a deeper systemic sickness will determine whether the age of AI becomes a new beginning, or just another turn in capitalism’s long, cyclical dance between exuberance and ruin.