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Warnings about the overinflated prospects of a still-hypothetical “AI economy” continue to mount. Some analysts expect the AI bubble to burst sooner rather than later, arguing that current investment growth cannot continue indefinitely in a finite world.
According to a research note recently sent to clients by Deutsche Bank, the AI boom is currently helping the US economy avoid a recession but it cannot continue indefinitely. George Saravelos, Global Head of FX Research at Deutsche Bank, said the US would be close to a recession this year if Big Tech were not spending so heavily on building new AI data centers.
The “AI machines” are literally saving the US economy right now, Saravelos said, but this kind of growth cannot be sustained unless spending remains on an ever-growing course. Nvidia, the major supplier of powerful AI accelerators used in data centers, could potentially bear much of the residual growth the US economy has experienced in recent months.
“The bad news is that in order for the tech cycle to continue contributing to GDP growth, capital investment needs to remain parabolic. This is highly unlikely,” Saravelos said.
Around half of the market gains captured by the S&P 500 index have been driven by tech-related stocks, Deutsche Bank warns. A separate report by Torsten Sløk of Apollo Management concurs, noting that equity investors are “dramatically overexposed” to AI investments.
According to analysts at Bain & Co., even with all this spending, AI is likely to generate insufficient revenue to fund further growth initiatives. By 2030, anticipated demand for AI services would require $2 trillion in annual revenues, leaving a shortfall of $800 billion globally to meet that demand.
Will AI capital expenditure continue to surge with staggering figures and impossibly high revenue expectations? Baidu CEO Robin Li recently predicted that 99 percent of so-called AI companies will not survive the bubble, while legitimate businesses are now squandering money and potential productivity gains in an attempt to turn everything into an AI workload.
My brother, they spent 230 billion dollars on AI last year and are gonna spend 300 billion this year.
That’s a lot of money being spent on employees, real-estate, products and services. Stock market has nothing to do with it.
Yeah except the literal argument behind that spending is that it curtails spending “somewhere else” in the economy. The entire bubble is built on the idea that AI can represent an ‘employee-replacement’ somewhere in the economy. So the spending isn’t purely additive the way other technical innovations/ bubbles of the past have have been. Its specifically less-than-additive, and the more “less-than-additive” it is, the “better” it is?
The entire idea behind this bubble is that if you spend $1 on something “AI” you get to spend less that $1 some where else. If “ai” true, its a negative pressure: every dollar spent deletes a dollar spent some where else.
The spending DB are talking about isn’t sales, it’s cap-ex; money spent on building out data centres primarily. That’s construction, wiring, plumbing, security, etc, etc, etc. Lot’s of money going into regional economies, for as long as this building frenzy continues. That’s just about making up for the weakness in every other part of the US economy. When that goes away, you’re left with a recession.
From the perspective of companies investing in AI, the idea is to spend less but generate the same (or higher) profit. For example, let’s say you sell software, but a big part of your cost is coding & developing it. The pitch is that you can code it with AI agents at a fraction of the cost, and increase your profits accordingly.
So companies don’t see this as an economic net-negative. But to your point, I’m not sure if those same companies are considering that if no one’s paying people to create products, there will be no one with money to buy them.
In those people’s mind it’s always Somebody Else who will pay people the salaries used to buy those Product and Services.
The whole thing is basically a Tragedy Of The Commons situation and in that kind of situation, whilst the system could cope if only some were taking from the system more than they put back, the whole thing turns into a Tragedy because increasingly more such actors do it and eventually most of them do it (as those not doing it see others doing it successfully and also want a bigger slice of the pie for themselves), and the almost purely extractive posture of them all added together goes beyond what the system can support.