When does the AI bubble burst - and what then?

That AI is currently inflating a mighty economic bubble is a commonplace observation.  A vast proportion of US economic growth (as conventionally measured) and stock market value is related to AI.  Every damned company on the planet is trying to portray itself as somehow AI-contributing or AI-powered – and they are frequently getting a gratifying share-price kicker from it[1].  Presumably, the pension industry is pretty addicted by now.

In the real world, the vast and (we are told) exponentially-growing demand for electricity – 100% secure baseload electricity to boot – made by data centres is seriously distorting electric power-system planning for many a nation.  Coming atop the average grid’s already torturing itself – and its hapless bill-payers – to accommodate the diametrically opposed demands of a decentralised renewables-based future, this is a serious spanner in the works.  And of course governments everywhere are anxious to play host to new data centres, Starmer’s as much as any; and are making this a policy priority.   But the (would-be) data centre builders have twigged that these contortions on the part of conventional grid operators may very probably not prove successful – and thus are talking about joint ventures with nuclear generators and … sponsoring nuclear fusion development! [2]  Yup, it’s a completely irrational bubble.     

But what does that tell us about AI itself?   Not much, beyond the obvious fact that it has gripped the universal imagination to the extent that dollar signs rotate in every businessman’s eyeballs.  

Well.  Railways had a mania, and many a railway company went bust.  The technology and much of the infrastructure they built is still evolving and very much in use.  We had a dotcom bubble.  It burst, alright, but it didn’t mean the internet was a phantasm.  Enron was a bubble: but it didn’t mean the Enron vision for how energy markets should be configured was wrong.  (Even China is trying to figure out how to bring that revolution into its own constipated energy sector.)  Etc etc – these techie-based phenomena are not like Dutch tulip mania: nobody needs tulips, but everyone needs railways / electricity / the www / …. and, probably, we’ll continue to want and need the advances that are made under the banner of ‘AI’.

So: if history is any guide, it’ll be a painful financial collapse; a reshuffle of the runners and riders in the “AI industry” (for those who don’t break a leg & are not shot by the vet); and the underlying new tech rumbles on to find a more stable way to become a permanent fixture in all our economies and our ways of life. 

Views?  Predictions?  Timing ..?

ND

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[1]  Even Drax, FFS – a floundering, downsizing biomass-burning power company.  

[2]  On the eve of the 2007-09 financial crisis, a high-end energy-specialist VC firm of my acquaintance was looking for opportunities to invest in unsubsidised nuclear powerplant development.  When money is aimlessly sloshing about on that scale, that’s when you really know a financial crash is coming soon.