An A.I. boom or bubble?
In 2014, I read “The Second Machine Age,” a book by two M.I.T. economists. The authors offered a sort of utopian vision of A.I.: The technology would lead to an age of hyper-productivity and plenty, where the only question was how to distribute its gains fairly.
We could still get there, but it seems fair to say the road to utopia, if that is our destination, won’t be smooth. Current anxieties around whether A.I. has become too dominant in the global economy — what happens if it’s not all it’s cracked up to be? — sit alongside competing ones: What happens if A.I. is all it’s cracked up to be, and can replace all those humans after all? Would that really be a good outcome?
I spoke to my colleague Cade Metz, who writes about artificial intelligence. He told me every technological revolution has created anxiety during the transition from the old to the new, when jobs are destroyed, money is lost, and companies go bust. The question is what emerges on the other side.
Cade, is this A.I. boom in fact an A.I. bubble?
That’s the million-dollar question. Or rather: The trillion-dollar question. This one technology is propping up the economy in so many ways. But we’re at a point where we’re not sure where that technology is going. It’s hard for even the companies building the technology to articulate where they’re going.
Some of these companies are not even turning a profit. What justifies these valuations?
So some of these companies are enormously profitable. Google, Meta, Amazon and Microsoft make billions of dollars a quarter, on core products that are not fundamentally A.I.-related.
But their bottom line is also being driven by the interest in A.I. To build these A.I. technologies, you need enormous amounts of computing power. Google has that computing power. So do Amazon, Microsoft and Meta.
Everyone else who’s jumping on the A.I. bandwagon pays those firms for that computing power. So there’s all this other money that’s being pumped into these big companies, and so their stock price goes up, their valuation goes up, their revenues go up.
All that makes sense. But if those other, smaller companies don’t start making money soon enough, you might have a problem.
If this is a bubble, and it bursts, how bad would it be?
The dot-com bubble is one potential analogy. What happened there was, a lot of people lost a lot of money — people who were invested in the technology, people who were building the technology. Many companies just vanished, right? And you had some large companies go bankrupt. So you know, it wasn’t a small thing.
But the larger economy wasn’t affected in the same way that it was in the 2008 financial crisis, which is another possible analogy.
Some people are concerned about what they call potential systemic risk in the economy that would make it more like 2008. There is a lot of debt being taken on by highly leveraged investors and it’s hard to tell how much debt, who holds it, how widespread it is.
All these companies that are betting big on A.I. — what does a successful bet for them look like?
Take a company like OpenAI. They think that within a few years, they’ll make tens of billions of dollars a year. They’re already getting billions of dollars in revenue. But they’re losing even more because it’s so expensive to build this stuff. They think that by 2030 it will flip.
It might. But even if the technology comes through, not everybody can win here. It’s a crowded field. There will be winners and losers.
Yet another potentially good analogy is the railroad boom of the 19th century. The invention of the steam engine led to a boom in railroad building. You had railroad lines being built right beside each other. And that’s a lot of what’s happening here: You have all these companies building exactly the same thing — these massive data centers. Many people think there is surplus capacity being built right now. Which means you’ll have a lot of losers in the longer term.
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BEFORE YOU GO …
You might know I live in Wales. It was an adjustment moving to Cardiff after Paris, London and Berlin. At first I missed the energy, the diversity, the sense of freedom that comes with the scale of those places.
But what I’ve learned here is the power of community.
The Welsh comedian Rob Brydon jokes that if you name someone from Wales to a Welsh person, he either knows someone related to them or who went to school with them. When I drop my son at the school gate, I don’t just bump into my sister-in-law, I see my hair dresser, the guy who runs our gym, and, yes, half a dozen people who went to school with my husband.
Last weekend, the actor Matthew Rhys was in town, to do a one-man show on actor Richard Burton (Welsh!) on a local stage. Matthew grew up in Cardiff and, yes, went to school with my husband. It was part of a fund-raising tour for a new National Theater of Wales that Michael Sheen, another Welsh actor, is driving. At the reception afterward I spoke to Michael’s assistant (who went to school with my husband).
With that sense of community comes an extraordinary sense of national pride, joyful and inclusive, which to me personally as a German has been a revelation.
One of the most rousing expressions of this was the 2022 pep talk Michael Sheen gave to the Welsh football team before it headed to the World Cup. Watch it here. It’s incredible.
This week’s world-themed song is Welsh of course: The Super Furry Animals’ “It’s Not the End of the World?” The lead singer, Gruff Rhys, did not go to school with my husband (but his wife did!)
Have a great weekend. — Katrin
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Katrin Bennhold is the host of The World, the flagship global newsletter of The New York Times.
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