The rapid rise of artificial intelligence could soon face a market correction, warned Nick Clegg, former U.K. Deputy Prime Minister and current Meta executive, in an interview with CNBC on Wednesday.

Clegg cautioned that the ongoing AI investment frenzy has created “unbelievable, crazy valuations” across the industry. “There’s just an absolute spasm of almost daily, hourly deal-making,” he said, suggesting that the likelihood of a correction is ‘pretty high.’

He explained that market bubbles typically emerge when company valuations far exceed their underlying business fundamentals. In the AI sector, Clegg noted, much depends on whether major hyperscalers — including firms investing hundreds of billions of dollars in data centers and infrastructure — can eventually recoup those costs and demonstrate sustainable business models.

“That’s obviously going to raise some issues,” he added, pointing to challenges in the large language model (LLM) paradigm that underpins much of today’s AI development.

Superintelligence vs. Utility

Clegg also addressed the growing obsession with artificial superintelligence (ASI) — the idea that AI could one day surpass human intelligence — contrasting it with artificial general intelligence (AGI), which would merely match human cognitive ability.

He argued that while tech visionaries like SoftBank founder Masayoshi Son and Meta CEO Mark Zuckerberg have embraced ASI as the next frontier, probabilistic AI models have inherent limitations that may prevent them from achieving such vast capabilities.

“I think there are certain limits to that probabilistic AI technology,” Clegg said, “which means it won’t be quite as all-singing and all-dancing as people suggest. But that doesn’t mean the technology won’t persist or have a huge impact.”

Learning from Past Bubbles

Clegg drew parallels between the current AI boom and the dot-com bubble of the early 2000s. Despite the burst, companies like Meta (formerly Facebook), Amazon, and Google emerged stronger, evolving into some of the world’s most dominant tech firms.

He emphasized that downturns can be healthy for innovation: “The best companies are often built in a downturn or tough funding environment,” Clegg said, noting that such periods push entrepreneurs to focus on efficiency and sustainability.

While the AI industry continues to expand at breakneck speed, Clegg’s warning underscores a growing consensus — that the sector’s explosive growth may soon meet a market reality check, separating genuine long-term innovators from overhyped ventures.