Boom, bubble, bust, boom. Why should AI be different?
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Nov 21, 2025 at 3:30 PM EST
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The value of modern AI seems very high. That nobody knows how high, that they still haven't figured out applications, and that the technology and its tools are still far from refined, is normal for any new technology.
If you add the value of the potential political power gained by controlling AI, then the value to the owners and investors is astronomical. Many of the investors have demonstrated a strong motivation to sacrifice money for political power, for example by supporting nationalism that undermines a global economy that they benefit enormously from. Somewhere, I read someone explaining their investment by saying 'it's the greatest transfer of power in (modern) history'. Also see: https://news.ycombinator.com/item?id=45983700
A couple of years down the road, their useful applications still are summarizing text, transferring style to text, generating code under strict supervision, and generating images that need retouching.
That’s a lot to get out of a tool, but it’s dubious that investors were pouring trillions of dollars into these things thinking of automating away junior software engineers and low end design work.
Edit: I forgot their other niche, that of generating homework and school test answers
And it's really still very arguable imo if it's even doing this
Like you said, it still needs strict supervision. In my opinion it is not a good use of your supervisory time to be babysitting an LLM versus mentoring actual juniors
Right. Because at least juniors are supposed to learn and at some point become senior and stop needing this kind of supervision. Also, interacting with people can be more rewarding (or not, depending on the people)…
The massive planetary investment is not to make more AI chats that summarize text. That's just short sighted.
I think most smart people are looking seriously at different models to try and improve the accuracy of any existing ML uses they had in their business but the new features built post-ChatGPT tend to often just be fancied up chats.
Hopefully we can retain a lot of this value when the bubble bursts but I just haven't seen any really good success stories of converting these models into businesses. If you try and build as a middleman where you leverage a model to solve someone's problem they can always just go to the model runner and get the same results for cheaper - and the model runners seem (so far - this may change) to be unable to price model usage at a level that actually makes it sustainable.
Those older models running specialized tasks seem to be trucking along just fine for now - but I remain concerned that when the bubble bursts it's going to starve these necessary investments of capital.
I think it's pretty clear to all the big operators that they will need to go whole hog into ads and take some of the Google/Meta pie. It's just a matter of time.
It seems like that at first glance. But in reality, GPUs have had extremely slow adoption for real-world operational meteorology applications. Because of the fundamental design and architecture of most NWP systems, it was very difficult to leverage GPUs as compute accelerators; most efforts barely eked out any performance gains once you account for host/device memory transfers. It really wasn't until some groups started to design new weather modeling systems from the ground up that they could architect things in such a way that GPUs made a significant difference.
Obviously AI / ML weather modeling is a different story.
So I would fairly limit my experience to consumer and medium-sized business uses - I have no experience with large corporate translation efforts (the largest would probably be Ubisoft or the Mouse-Ears company's gaming divisions if you consider them large) and even the small mobile game company I worked at had a budget in the millions range. It certainly hasn't been a focus of my career but I feel comfortable standing by my statement above.
Except… can you capture it? A junior dev is… not exactly someone you want connecting to your business-critical database without supervision, and a real human dev will get better with a predictable rate. Will LLMs get better? The makers are betting on that, but we'll only know after the model releases, and even then after we play with them for a bit to differentiate between the record performance on whichever benchmark and the actual work we want them to do.
Then there's the question of can you really keep an edge for 20 years with investments today: Sometime between 2030-2035, there's likely to be models matching 2025-SOTA performance that run on ${year}'s high-end smartphone.
(Well, unless we all die in WW3 because of Russia getting desperate from its failure to remove Ukraine's sovereignty, or because China has a hot war with Taiwan and/or the USA messing with global consumer electronics supplies, but I don't think those get priced into the market…).
that's like 5% of NVIDIA's current market cap. sounds like peanuts when you lay it out like that
But that's just the USA's software developers in just their first year after graduating. Software devs are 1% of the US job market, the first year after graduation is (66-21=45 years, 1/45 ~= 2%) of a working life, the US is just 4% of the world's population/25% GDP.
For the 1% to matter, there have to be other jobs that LLMs can do as well as a fresh graduate. I don't know, are LLMs like someone the first year out of law school or medical school, or are those schools better than software? Certainly the home robotics' AI are nowhere near ready yet, no plumber, no driver (despite the news about new car AIs), would you trust an Optimus to cut your hair? etc.
For the 2% to matter, depends how seriously you take the projections of improvements. Myself, I do not. Looks like exponential improvements come at exponential costs, and you run out of money to spend for further improvements very quickly.
For the 4% to matter, depends on how fast other economies grow. 4% by population, about 25% by GDP. I believe China is still growing quite fast, likely to continue. Them getting +160% growth, and thus getting 2.6x times the money available to burn on AI tokens, over the next 20 years would be unsurprising.
All in all, I don't think the USA is competent enough at large-scale projects to handle the infrastructure that this kind of AI would need, so I think it's a bubble and will burst before 2030 because of that. China seems to be able to pull off this kind of infrastructure, so may pull ahead after the US does whatever it does.
Before looking to medical and law schools, I might look to middle-manager school or salesperson school or bookkeeper school.
I don’t know enough to speculate even beyond those crude guesses, but as I thought about this question, I found it interesting to skim the US’ employment-by-detailed-occupation chart:
There’s probably a good business usecase there for companies wanting to have smoother communication with offshore teams.
Could that be a game-changer? I wouldn’t discount it, but it does sound like something that has to operate at a very low margin and that doesn’t merit a lot more investment.
So, back of the envelope math, the US GDP is 27.72T USD, 80% (22.18) corresponds to the tertiary sector.
Let’s say that this is a 15% increase over a 10 years period, because YoY a boom like the computer revolution itself looks like 2% increases a year.[1]. This amounts to about 1.5% increases each year.
Let’s just make the huge leap that you can just scale the productivity up of all this just by making typing out reports and emails a faster activity, and summarizing information for which you’re not facing liability if the bot gets it wrong.
Yes, including the nurses, cleaners, truckers, teamsters, all of it.
1.5% of it is a cool 330 billion.
How much of a cut of that productivity increase could AI companies take? 30%? That’s 100 billion in one year there.
So with pie-in-the-sky math, they could break even if their obligations throughout the decade don’t amount to 1 trillion (since those 1.5T in bonds issued this year mature in longer periods)
1. https://www.bls.gov/opub/mlr/2021/article/the-us-productivit...
Search is dead or dying
Social media is dead or dying
Content creation is dead or dying
If they cant make AI work, then they are left with AI at a level that continues to devalue their core business.
They have no choice. They made a deal with the devil. And the devil means to collect.
This is why I think Apple is lucky their attempt failed so bad. They dodged a bullet. They have an opportunity to guide a lost tech industry through a post AI bubble world.
Very useful, clearly. But valuable? In aggregate it seems clear that it is. But where does that value acrue? It seems to me the value will be thinly spread while the costs are concentrated.
It does not seem possible that any conceivable business can pay for all the announced plans for developing data centres, nor energy available to power them.
If AI systems can be developed to be trust worthy enough to act on their own, none so far (?), then I can see where the value could acrue, but as things stand?
The internet was amazingly valuable, but many of the early companies failed. Investing in internet companies was hardly a sure bet.
The same could be said for the internet. But, and I know this will be hard for younger readers to believe, I seem to recall the value proposition of the Internet being more immediately apparent at the time.
Not really. I mean, not only. The value of the web is immense. And yet, the dot-com bubble was indeed a bubble. What matters is the value in the short term compared to the value of the companies in the current context. Even if AI is huge 20 years from now, it can still crash dramatically tomorrow.
How that washes out on net we'll have to see. I'm not gonna pretend I know more than anyone else. Just keep in mind that a major difference between now and 2000 is companies stay private a lot longer. An IPO forces you to open the books and sustain public scrutiny of the broad investor class. A still-private startup only needs to convince one funder of their value. That inevitably leads to higher variance and a greater risk of failure. That doesn't mean the whole sector is necessarily a bubble, but if it is, it can be sustained a lot longer without us knowing. A small number of people with $50 billion they need to park somewhere and no other obvious options can keep shitty ideas afloat in a way that wouldn't be possible if they had to be subjected to broader exposure. We like to believe people with $50 billion can't be wrong, but the wisdom of crowds always beats the wisdom of individual genius.
Heck, AI itself taught us that same lesson!
This seems like a variation on the President's (and my CTO's) process of 1. go on record both supporting and denouncing all positions, but commit to none, 2. wait... 3. spin your previous wisdoms based on the actual outcome. A super-inconsistent & confusing track record is actually a major asset when executing this strategy!
Identify the therefore part of the prediction and enumerate the three highest priority steps.
Have you determined that the stock market will crash and bought positions accordingly? Have you sold all your nvidia stock? What are the implications in the broader economy and what steps have you taken?
This sort of approach is pretty aggressive and definitely contrarian to the general market, but some alternatives to mitigate the coming pain (if you believe it's near) would be shifting into a more liquid position to take advantage of tightening liquidity, i.e. big companies may see their shares tank but will likely still be able to service their debt. In the meantime you'll miss out on a market that still seems pretty strong.
In the late 90's and early 2000's, businesses were SALIVATING to get online, individuals were finding new ways to benefit and profit from it, and massive investment was being made to facilitate what was inevitable: an interconnected network of everything. Do you remember faxing things ? Paper mail? People half in the know were pushing the Boomers and older Gen-X types to get on with it and modernize.
Now? Not only are people not CLAMORING for more AI, it's that The Powers that Be are forcing it down our throats. At work, we have mandatory AI training, we have people getting promoted for promoting extremely dubious AI solutions both internally and on our product. I log into ANY web site now, whether I'm shopping for a vacuum cleaner or logging into a vendor website, and I get AI shoved in my face, from from "assistant" I have to interact with before typing "agent" to new features I don't care about.
Is there some truth, some merit? Absolutely. But my red flag I'm trying to raise is this: never did it feel FORCED in the 90's, there was a salivation from individuals to get more online, and a reluctance from institutions like elementary and high schools to get with the program.
Now? Corporations large and small are shoving it down our throats. Why? Well, to justify the crazy spending.
I'm no prophet and the world (and economy) are fundamentally unpredictable. But I'll say this. I'm putting my money where my mouth is, and I've put in an order to buy a 5 digit dollar amount of puts on a big 'AI' type ETF, that'll expire in the Spring. It's already wobbling and if you can't beat them, profit off of them when they stumble.
There's absolutely something wrong in the current moment, even if AI is somehow the future. For one thing, the U.S. economy would probably be in a recession right now if it weren't for this insane AI spending. It's wobbled with the recent Nvidia earnings release, and I think it is going to dip (not crash, but start dipping) soon.
The author wrote:
"None of these companies has proven yet that AI is a good enough business to justify all this spending. But the first four are now each spending $70 billion to $100 billion a year to fund data centers and other capital intensive AI expenses. Oracle is spending roughly $20 billion a year. "
In my opinion it's a theoretical arms race 'just because my competitor might win', and not based on anything certain.
Crazy amount of funding, little to no revenue, no competitive moat, no demand.
Compare that to today, and you see only the crazy amount of funding part is the same.
For the shovels part: Actually Global Crossing tried to sell shovels. But failed since there was no demand and no moat. Now compare that to NVIDIA.
Doesn't this also describe Thinking Machines Lab?
AI literally does people's jobs for them. There's not much imagination required.
It's also not doing peoples' jobs for them, for the most part. AI's supporters do very loudly proclaim this, though.
From what I can tell at this point it's a solution looking for a problem. Incredibly impressive, not so useful
The bubble may deflate but every company mentioned will still be standing, whereas in 1999 many of them were basically Ponzi schemes relying on further investor dollars to subsidize losses. All this AI spending will hurt some investors if the bubble pops but just make for a few bad quarters for the big tech cos.
Plenty of old companies spiked in 2000. Companies like Microsoft, Intel, or Cisco. Shovel sellers with a history of decent profits. I mean, the NASDAQ crashed, an it is not all made of start ups. You sound in denial, but there are more similarities than you seem to realise.
I'm not a real "investor" (index funds only) but I am feeling more willing to forgo gains to be more risk averse just based on my own neuroses.
Maybe I cash out and buy T-bills? Gold? Bullets? What's the non-crazy person equivalent?
What are the implications of bond prices in this dubious interest rate environment? It seems no one knows what the Fed should or wants to do, including the Fed. And if the economy is on shaky ground, won't that be bad for bonds if companies can default?
You're not expecting it to earn much, but it should hold its value over the long term. This will reduce the expected return of the portfolio, but the goal is to get volatility to a level you can stomach, allowing you to ride out fluctuations on the equity side. Because even though we can all look at the current situation and say the stock market appears overvalued, we can't know how much higher it will go, when we've hit the top, or once it starts declining, when we've hit the bottom. Even experts do no better than luck would dictate at that game.
I'd say ex-US international value stocks, especially EU, are a better hedge.
And this isn't even about the total number of high-paying jobs. Even having too much income concentration (fewer, but higher paying jobs) will mean that there's less demand at the margin. To put it another way, if the job growth in say, silicon valley, starts to reverse because of AI, there will still be newcomers, but not enough to buy out the available housing at an ever increasing price.
If the price trend ever reverses and holds that way long enough to seem like a new normal, I suspect the price will suddenly correct downwards. Everyone holding on to real estate as an investment will have a great reason to sell once it becomes a depreciating asset. If it goes on long enough, people will be underwater on housing and start walking away.
The price trend is already somewhat flattened, which reduces FOMO. Why buy now when AI is uncertain and the price seems pretty flat?
Diversification is the bedrock of portfolio management, meaning owning a range of assets that collectively perform acceptably under a range of scenarios. But it’s generally not sexy, not something you catch individuals bragging about - avoiding permanent loss of capital.
Think about what risk you’re willing to take, in the context of your job/career prospects, current investments etc.
These are things for you to decide. Wouldn’t trust anyone who says buy x without knowing your individual circumstances.
What I can say is there are consistent patterns for many successful investors, and the media will tend to focus on the outliers / lottery winners, which by definition are difficult to emulate / replicate. Be wary of survivorship bias and the narrative fallacy.
I'm not really an investor btw, this is just my intuition. I'm curious what others here are doing.
Gold is only for very rich people if you want to have something in the case the whole economy goes to the bin.
Bullets if you are paranoid.
Edit: Notably, you don't have to fully stop investing in the SP500. If you were previously 60% weighted towards the SP500, you can still reduce your exposure by changing that to 20%, or something like that.
For this round I've bought (well, bought and sold, and now waiting to buy via an order) puts on a semiconductor ETF. Since I own some of the stocks, if it goes sky high still I win, if it crashes I win, and if nothing happens I'll have to sell it 30 days before it expires to avoid the theta decay, which starts to really bite in that last month.
No one knows anything - which is the environment I'm learning to operate it.
A very conservative investor, say a boglehead or a 'value investor' would tell you to buy in an index fund and not look, unless you know for sure what you are doing and have done insane research on a company and it's priced low. They would say, buy VTI or VOO if you don't need the money within 5 years, and stop looking at it. Oh, and DCA into it versus all at once.
LLMs can be useful tools in the right situations and the valuations for companies involved with them can be wildly and irrationally inflated at the same time.
So, if people are wondering out loud (with widespread traction) if there's a bubble, there's probably not one. It may be self-fulfilling. The awareness of a potential bubble influences us to be more cautious.
For the last most explosive bubbles -- "dot-com" (~2000) and "housing" (~2008) -- you can go back and find all sorts of warnings and critiques and fretting and skepticism in newspapers, academic and industry journals, blogs, television, personal ephemera, etc. And not too far from almost all the examples you find, you'll also find somebody blowing off the skepticism.
The tricky part is that you can more or less find similar dialog in all those sources even when there didn't turn out to be a looming collapse. There's just always people worrying about collapse or hard correction when the markets are running hot and always people blowing them off, and sometimes worriers prove right. Eventually. And sometimes they don't, and the underlying economy either catches up with the market or government policy successfully props it up for long enough that some other concern dominates or some other industry can absorb the over-allocated investment.
Basically, it turns out your heuristic for spotting a bubble faces too much noise and isn't actually all that informative at all.
Webvan → Instacart, DoorDash, Amazon Fresh
Kozmo.com → Postmates, Uber Eats, Gopuff
Boo.com (fashion) → Farfetch, Net-a-Porter, ASOS
Broadcast.com → YouTube, Netflix, Twitch
The dot-com bubble didn’t prove the internet was a fad — it proved the internet was inevitable, but the valuations assumed adoption would happen in 2 years instead of 15–20. To me it feels like the AI inevitability will be much quicker.
There is also a customer adoption curve of technology that lags far behind the technologist adoption curve. For example video on the Web failed a long time, until it didn't, when Youtube began to succeed. The problem became "boring" to technologists in some ways, but consumers gradually caught up.
AI is accelerating "let them eat cake" at rates never seen before in history, so I imagine the violence will follow soon after
Homes as assets should pass on, higher cost services of today would be replaced by lower cost which only temporarily would increase units sold(but should eventually plateau because #units/person is not going to change). No component of the GDP will move.
If the fertility rate of developed economies is less than 2.1 then there should be wealth and asset accumulation among the younger people over time. The demand for newer goods and services from the people who get richer is inelastic: most goods and service's prices dont matter to the rich they buy them any ways, and it continues to keep becoming more inelastic.
So within like a several years the demand should just collapse as wealth accumulates a lot and people work less and become more price insensitive. Immigration is set to remain low to developed nations for the next 3-5 years.
This seems to be quite evident in Japan and EU already(though in the EU if you adjust the productivity for work hours the GDP becomes same as America's).
So why do people assume developed countries would even buy this much more new stuff. 1.5 trillion$ worth of new things over the next 5 years?
It’s not as if there were ten million people using and/or building on the Internet, and then this bubble popped and for some years there were only ten thousand people on the Internet.
And I think the same is true for „AI usage/adoption“.
Honestly anyone who thinks AI has intrinsic value to rival the GDP of nations is a bagholder in denial and I'll be happy to buy your puts.
The Tulip mania (if it existed) was a bubble. It popped, it's never coming back. BeanieBabies was a bubble for the same reason. NFT art remains to be seen, but I think it was likely a bubble.
The internet was over-invested and decreased significantly when looking on a timeline of 5-7 years.
But outside of that, if you were to take the valuation of internet companies, it is greater than during the period we call the bubble.
We'll see the same with AI. There will most likely be a drop in valuations when looking at a medium term timescale, but long-term, I expect AI companies will be worth far more than they are today.
When the markets drop on a monthly scale, but then rebound, we don't call that a bubble, so why do we call this sub-decade decline a bubble?
Do you think we should have another term for this?
Same with the housing bubble, yes, it popped and lots of people got hurt, but those who were able to hang-on, I think, ended up ok, and on a moderately decent timeline.
"All but Alphabet have seen big share declines in the past month. Microsoft is down 12 percent, Amazon is down 14 percent, Meta is down 22 percent, Oracle is down 24 percent"
That fluctuates anyway and profits are made by some - nothing new here.
I think the world needs to detach from the stock markets though. That may not seem realistic right now, but if you look at the current US president and the ties to superrich, we really have a huge problem now. A few parasitize on the masses. That can not be sustained. It is not ethical.
"It will spark a generation of innovations that we can’t yet even imagine."
I am not so sure. So far I successfully avoided AI, including becoming dependent on AI - I am not. So that is good.
I can not really see what "innovation" would make me want to embrace AI. Perhaps I can be forced into it, but right now I am happy avoiding it.
"Because we humans are pretty good at predicting the impact of technology revolutions beyond seven to ten years."
No, we really are not.
"Not only does the AI bubble in 2025 feel like the internet bubble in 1999"
It is still not the same.
I feel the article is falling apart there. It tries too much to compare to the 1999, but it is not the same.
Wow, what a sentence. It starts out bad and just gets worse.
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