People always ignore the warnings when something shiny and new shows up, and AI is the latest shiny object. Just like in 1929, everyone wants a piece of the “next big thing” and convinces themselves it can’t fail, even when the numbers don’t make sense. Trillions are flowing into data centers and tech hype, while sober voices warn that this is pure speculation dressed up as progress. The bigger the frenzy, the faster it ends when reality shows up. Moonshots don’t pay the bills, and bubbles always pop.
Look around: Bubbles are everywhere.
Two months before Black Monday, the market crash that led to the Great Depression, a Massachusetts economist named Roger Babson, fretting over a wave of mom-and-pop investors borrowing money to buy stocks, declared in a speech that “sooner or later a crash is coming and it may be terrific.” Afterward, the market sank 3%, a dip known at the time as the “Babson Break.” But in the weeks that followed, writes Andrew Ross Sorkin in his engrossing new history, 1929: Inside the Greatest Crash in Wall Street History—and How It Shattered a Nation, “the market shook off Babson’s foreboding,” in part because of optimism over new mass-market products like the radio and the automobile. “Investors with an ‘imagination’ were winning again.”
Today there are many Cassandras like Babson warning about AI, in particular the valuation of public and private technology companies and their headlong pursuit of the elusive goal of artificial general intelligence (systems that can do just about anything a human can do and more). Tech companies are on pace to spend just shy of $1.6 trillion annually on data centers by 2030, according to data analyst Omdia. The magnitude of the hype around AI, whose prospects as a profit maker remain entirely hypothetical, has confounded many sober-minded investors. Yet now, as a century ago, the idea of missing out on the next big thing has persuaded many companies to ignore such prophecies of doom. They “are all kind of playing a game of Mad Libs where they think these moonshot technologies will solve any existing problem,” says Advait Arun, a climate finance and energy infrastructure analyst at the Center for Public Enterprise, whose recent Babsonesque report, Bubble or Nothing, questioned the financing schemes behind data center projects. “We are definitely still in the irrational exuberance stage.”