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Speculative Growth and the AI "Bubble"

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  • Ricardo J. Caballero

Abstract

AI technology can generate speculative-growth equilibria. These are rational but fragile: elevated valuations support rapid capital accumulation, yet persist only as long as beliefs remain coordinated. Because AI capital is labor-like, it expands effective labor and dampens the normal decline in the marginal product of capital as the capital stock grows. The gains from this expansion accrue disproportionately to capitalists, whose saving rate rises with wealth, raising aggregate saving. Building on Caballero et al (2006), I show that these features generate a funding feedback—rising capitalist wealth lowers the required return—that can produce multiple equilibria. With intermediate adjustment costs, elevated valuations are the mechanism that sustains a transition toward a high-capital equilibrium; a loss of confidence can precipitate a self-fulfilling crash and reversal.

Suggested Citation

  • Ricardo J. Caballero, 2026. "Speculative Growth and the AI "Bubble"," NBER Working Papers 34722, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34722
    Note: AP EFG
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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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