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.
Then STOP, sustaining the bubble only makes it worse in the end.
Damn economics gets too “bro science” for me sometimes to follow (sorry I was trained on an actual science so this is just always confusing for me I guess I am just too stupid), if the US would be in a recession if Big Tech wasn’t spending so heavily on things that mathematically don’t seem capable of turning a profit and will likely continue to hemorrage money… that seems a whole lot like saying the US economy is a ship and it would be sinking if the US economy wasn’t putting so much money into pumping water into it…?
Economics is a faith based religion.
Yes and the only faith I tolerate meddling with science is faith of the heart.
As in the reverberating sound of underground spirits?
It is sinking, but as long as we keep building out nobody seems to notice. The problem is that as you keep building around the outside, the outside gets bigger and it is harder to go all the way around.
The thing about sinking ships is they don’t actually require anyone to even notice they are sinking to sink. They sink regardless of whether people can agree or not about what is going to happen to the ship if we continue to do nothing.
Whoa, slow down on the false truths there. It has been announced that ships only sink when the executive leadership has been made aware of the vessel’s intent to take on water AND has been approved. Any contradiction to these established truths is considered a violence against the ship itself, endangering the lives of all.