Speculative Growth and the AI "Bubble"

High AI valuations are usually read as fundamentals or a bubble. This paper develops a third possibility: temporary overvaluation can leave a permanent real legacy. AI investment expands productive capacity and shifts income toward capital owners, whose propensity to save rises with wealth. This feedback supports a rational high-capital steady state. Rational pricing preserves the low-capital path; temporary optimism supplies the valuation needed for transition. It raises valuation and investment demand, pushing up the equilibrium real interest rate as capitalists postpone consumption to fund installation. The outcome depends on size and duration: optimism must open the high-capital path and last until capital crosses the threshold at which the rational high continuation becomes available. An earlier correction returns the economy to the low state; a later one lowers valuation but leaves the installed capital in place. The high-capital destination has higher worker wages and a lower real interest rate.