What: Venture capitalists warn that while AI agents hold transformative promise for automating workflows, the sector's rapid growth and inflated valuations resemble past tech hype cycles like Web3 and the metaverse.

Why it is important: AI agents could revolutionise industries by automating complex tasks, but uncertainty about scalability, value capture, and competition from Big Tech raises questions about the sector's long-term sustainability and potential risks for investors.

AI agents—autonomous applications leveraging large language models to perform tasks without human intervention—are attracting significant investment, with European startups raising EUR 481m in early 2025 alone. These tools are touted as game-changers for sectors like customer service, sales, healthcare, and legal, offering cost savings and operational efficiency. However, concerns about an overheated market are mounting, as many startups lack clarity on their scalability and value proposition. Comparisons are being drawn to previous tech hype cycles, such as Web3 and the metaverse, which saw massive investment followed by rapid downturns. Challenges in adoption, including data readiness, privacy concerns, and regulatory hurdles, further complicate the landscape. Moreover, competition from major players like OpenAI, Google, and Microsoft adds pressure. While some VCs remain cautiously optimistic, others expect a bust when current funding frenzies fade, leaving underperforming startups exposed. The next few years will test whether AI agents can deliver on their promise or follow the trajectory of past tech bubbles.

IADS Notes: As observed in January 2025, the retail industry stands at a critical juncture in AI agent adoption. While 87% of companies implementing AI have achieved revenue increases of 6% or more, implementation challenges persist. The technology's evolution is reshaping core retail functions, with companies achieving 15-30% productivity improvements. However, cybersecurity remains a significant concern, with 76% of executives acknowledging the need for improved measures. Recent developments, including Walmart's processing of 850 million product data points in August 2024, demonstrate both the potential and complexity of AI agent implementation in retail.

AI agents could be the next tech hype bubble to burst