This is a good example of the rubberbanding. I would be boosting everywhere hitting every boost pad but yet the AI would be right next to me. This happens all the time.
I don't think it's rubber banding. The AI on that track are programmed to hit 1m 35s to 1m 38s and they end within that time frame in the video. He just had a good second lap at 29s.
I played that like 5 times till I got a win on 1m 32s, with the AI in 1m 35s.
The lack of banding against the AI is actually a problem, in my opinion. Because if you get hit early the AI will still hit that 1m 35 to 1m 37m times. So, if you get hit early, that's often the end of the race. It doesn't help that, in my experience the AI are quite aggressive on hard mode.
They cheat to gain speed also. Even if you hit them with items early, they propel themselves back up to that very fast time. They take bad driving lines, and simply travel at a higher speed.
Overall, the AI implementation is very crude. Far worse than what it is in Mario Kart where they tend to be much more dynamic.