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The news of the (extremely) cheaper Chinese DeepSeek response to OpenAI's ChatGPT — "40–50x more efficient than other large language models," according to Goldman's Rich Privorotsky in the days following DeepSeek's launch earlier this year — ushered in a new theme: doing more with less and the mounting risks of an emerging AI data center bubble.

On Tuesday, Alibaba Group Holding Ltd. Chairman Joe Tsai told the audience at the HSBC Global Investment Summit in Hong Kong that the hundreds of billions of dollars in AI data center investments in the US appear to be the start of a bubble. 

"I start to see the beginning of some kind of bubble," Tsai said. He said some AI data center projects raised funds without securing "uptake" agreements, adding, "I start to get worried when people are building data centers on spec. There are a number of people coming up, funds coming out, to raise billions or millions of capital." 

At the same time as Tsai's warning, ChatGPT creator OpenAI, along with SoftBank, Oracle, and other US tech firms, have planned $500 billion in AI infrastructure projects. Also, Meta recently announced $200 billion in data center projects, while Apple revealed new AI investments in the US. 

"People are talking, literally talking about $500 billion, several 100 billion dollars. I don't think that's entirely necessary. I think in a way, people are investing ahead of the demand that they're seeing today, but they are projecting much bigger demand," Tsai pointed out. 

Days after DeepSeek's launch, we provided readers with enough color about the unfolding AI data center bubble: 

• DeepSeek May Trigger "Negative Capex Impact" As Peak Data Center Occupancy Forecast Faces Revision

• Goldman Asks If China's DeepSeek is AI's Sputnik Moment

By late February, TD Cowen's Michael Elias spooked the market and warned clients in a note that Microsoft had begun canceling data center leases. At the time, MSFT refuted those claims. 

The last few months — during which Big Tech firms like Amazon, Alphabet, and Meta competed to outspend each other on AI data centers — may be ending (at least for now), as growing evidence suggests that peak AI data capacity could be much closer than previously thought.

On Monday, Goldman's Allen Chang, Verena Jeng, and others revised down their "Rack-level AI Server volume forecast due to the combined reasons of product transitioning and uncertainties of demand and supply." 

Here's their outlook for servers:

Outlook for servers

In markets, Alibaba Group shares in Hong Kong fell 4% following comments from its chairman. Goldman's China Data Center basket plunged 8% overnight. More broadly, Chinese technology stocks tumbled from a three-year high to the brink of a correction in just five sessions.

Saxo Markets chief investment strategist Charu Chanana told clients, "Alibaba's caution around a potential bubble in AI data center buildouts has added pressure, hinting that the red-hot AI theme may face a short-term bump." 

The development of an AI data center bubble throws a massive wrench into President Trump's Stargate AI infrastructure project.

Tsai concluded at the HSBC Global Investment Summit: "I'm still astounded by the type of numbers that's being thrown around in the United States about investing into AI."