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: a price bubble can have a permanent real legacy. AI capital expands productive capacity and shifts income toward high-saving capital owners. Over time, this funding 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 overvaluation: investors perceive high returns, valuation rises, investment accelerates, and the transition itself raises the interest rate. The overvaluation must eventually correct; the question is whether it corrects too soon. If enough capital has been installed before the correction, the economy lands in the high-capital state. If not, the transition fails. The technology can be real even when peak valuations are not sustained. The incidence is asymmetric: workers receive higher wages at the high-capital destination despite a lower worker share, while capitalists finance the capital accumulation and bear the cost of the correction in belief-supported prices.