Speculative Growth and the AI "Bubble"

High valuations of AI-related firms are usually read in binary terms: either they reflect fundamentals or they are a bubble. This paper develops a third possibility: an optimistic valuation can have a permanent real legacy even when the valuation later corrects. AI capital expands productive capacity and shifts income toward high-saving capital owners. Over time, this wealth-saving feedback lowers the interest rate and can generate multiple steady states, including a self-sustaining high-capital economy. But rational pricing from the low-capital state does not take the economy there. The transition requires a temporary belief-supported valuation: investors perceive high returns, valuation rises, investment accelerates, and the interest rate rises during the transition. If enough capital has been installed before learning removes the wedge, the economy lands in the high-capital state, where the long-run interest rate is lower. If learning arrives too soon, the transition fails. The technology can be real, peak valuations can be unsustained, and the capital installed during the boom can remain. Workers receive higher wages at the high-capital destination despite a lower worker share, while capitalists finance the investment surge and are exposed to the correction in belief-supported prices.