Powell: This isn't the dot-com bubble because AI companies have real earnings

The Fed finally pulled the trigger on a 25-basis-point rate cut this week, which is exactly what markets had priced in. Then came a more interesting moment.

During the post-meeting press conference, a reporter asked Powell whether the U.S. economy is too reliant on the AI boom, and if there’s enough strength elsewhere to handle a potential slowdown in tech investment.

“The investment we’re getting into equipment and all those things that go into creating data centers and feeding AI is clearly one of the biggest sources of growth in the economy,” Powell said.

But he also pointed to consumer spending, which he said “has been growing and has defied a lot of negative forecasts and continues to do so this year.”

And though the spending may be skewed toward “mostly higher-end consumers,” it has been crucial to economic performance, according to Powell.

“Consumer spending is a big, big chunk of what's going on in the economy,” he said. “Substantially bigger than what’s going on with AI.”

Powell was also asked whether he saw any similarities between the investments pouring into the AI sector and the vast sums of money that fueled the dot-com bubble in the 1990s.

“This is different in the sense that the companies that are so highly valued actually have earnings,” Powell said. “If you go back to the 90s and the dot-com, these were ideas more than they were companies, so there was a clear bubble there.”

“And I won’t go into particular names, but they have earnings and it looks like they have business models and profits,” he added. “So it’s really a different thing.”

Bill Gates knows a bubble when he sees one

Given the amount of money going into the AI sector, it’s not surprising that a debate has grown about whether it is heading toward a bubble. OpenAI CEO Sam Altman contends that it is and now another tech luminary is agreeing with him.

In an interview this week with CNBC’s Squawk Box, Bill Gates, unlike Powell, does see similarities between the AI boom and the dot-com bubble.

"Some companies succeeded, but a lot of the companies were kind of me-too, fell behind, burning capital companies," he said about the dot-com boom.

And Gates expects the same thing to happen with the AI boom, where “there are a ton of these investments that will be dead ends.”

"The value is extremely high, just like creating the internet ended up being, in net, very valuable," he added. "But you have a frenzy. And some of these companies will be glad they spent all this money. Some of them, you know, they'll commit to data centers whose electricity is too expensive."

Just as some companies like Amazon (AMZN), eBay (EBAY), Qualcomm (QCOM) and Cisco Systems (CSCO) survived the dot-com bubble and became wildly successful companies, Gates and other experts anticipate the AI boom will also produce winners and losers.

That’s why an AI bubble is not necessarily a bad thing, according to Hemant Taneja, CEO of venture capital firm General Catalyst.

“Of course there’s a bubble,” Taneja said in an interview with the Financial Times. “Bubbles are good. Bubbles align capital and talent in a new trend, and that creates some carnage but it also creates enduring, new businesses that change the world.”