There’s plenty of chatter around how AI valuations are getting a bit out of hand and we might be entering bubble territory, but someone who has his finger on the pulse of Silicon Valley startups doesn’t believe this is the case.
Paul Graham, the co-founder of Y Combinator and one of the most influential voices in the startup ecosystem, recently pushed back against the growing chorus of bubble warnings. In an interview with TBPN, Graham dismissed the notion that we’re experiencing an AI-driven bubble, pointing out a pattern he’s observed for over a decade: people crying wolf about inflated valuations year after year, only to be proven wrong as the market continues to grow.
When asked directly whether we’re in a bubble, Graham was unequivocal. “No. Everybody is always saying we’re in a bubble. Every year people say we’re in a bubble. Every year people say the valuations at Demo Day are too high now. I mean, they were saying this back in 2010 when the valuations were like $4 million, and now they’re like, what, 30 million?” Graham said, highlighting how critics have consistently underestimated the trajectory of startup valuations.
Graham acknowledged that AI companies are commanding premium prices in today’s market, but he stopped short of calling them overpriced. “AI is very highly priced, but it might not be overpriced. That’s the interesting thing,” he explained. “Is it as big a deal as prices seem to suggest? It could be maybe even bigger. It’s definitely real. It’s not hype. The AI is real.”
This distinction between “highly priced” and “overpriced” cuts to the heart of the current debate around AI valuations. Graham would likely say that AI isn’t overvalued while looking for investments for Y Combinator companies on Demo Day, but he has a point — the astronomical valuations we’re seeing for AI companies might actually be justified if the technology delivers on its transformative potential. His comments echo the sentiment of many investors who believe we’re witnessing a fundamental shift in computing capabilities rather than speculative mania. Recent developments support this view: major tech companies are pouring hundreds of billions into AI infrastructure, AI tools are being rapidly adopted across industries, and productivity gains from AI implementation are beginning to materialize. Unlike previous hype cycles around technologies that failed to deliver, AI is already demonstrating tangible value in code generation, content creation, data analysis, and customer service—suggesting that today’s high valuations may indeed reflect genuine economic potential rather than irrational exuberance.