After the AI Crash: Economic Warning Signs and Future Consequences
I see unsustainable capital expenses, circular revenues, and huge debt driving an inevitable AI crash. Public pushback and corporate skepticism are growing as costs outpace benefits. While a total collapse could wipe out trillions in wealth, this market reset might ultimately force the industry toward efficiency and realistic growth, similar to the aftermath of the 2000 tech crash.
The most interesting thing about a major crash is that it can do as much long-term good as it does short-term harm.
- jsnell
> analysts have estimated that it will take $2 trillion a year in revenue to pay for the infrastructure that has already been built
I doubt any credible analyst has claimed that. What's the total AI capex that's already been spent? About $1T? It's a pretty absurd idea that those DCs need to make $2T/year for 5-7 years -> $10T-14T over their lifetime to break even.
(Yes, this is nitpicking in the sense that there are probably analysts talking about how projected and sustained capex at >1T/year will require 2T/year in revenue, so patching the article won't be a biggie. But this article is cosplaying as financial analysis and leads off with such an obviously incorrect argument. What does that say about the credibility of the rest of the article?)
> Diseconomies of Scale.
Another very basic mistake here. The author starts talking about efficiency in the context of past technologies. That's lower unit costs as scale increases.
But for AI, they seem to switch from talking about unit costs to total costs. Or at least I can't explain what they say about models getting more expensive over time in any other way, because that is not true about unit costs.
We've never seen economies of scale as large as for AI. For a given quality level, the cost has been dropping at >10x per year, not increasing.
- cmiles8
It’s not a question of if but when at this point.
To parallel to The Big Short this is the point in the movie where folks realize it’s mathematically impossible for things to not implode and so players are quietly positioning themselves for that eventuality before things are allowed to blow.
It’s been a dramatic shift these last six months but everywhere I look now folks are quietly preparing their battle armor to survive what’s about to unfold.
The tech will stay, but the AI business landscape will have a market-cleansing forest fire.
There’s a whole generation in tech now that’s never seen what happens when a bubble like this unravels. I fully expect we’ll see the likes of offices just abandoned overnight with food still in the fridge as AI company after AI company just vaporizes.
- joshstrange
> Most new technologies have been welcomed by the public with open arms.
I'm not going to predict how this is going to turn out in either direction but this statement gives me pause. I don't think that's ever been true. Yes, the siren song is strong but initially most new tech is met with skepticism. Are we so quick to forget "the internet/computers are just a fad"-type thinking?
- Kuyawa
AI investment will crash but AI itself (the technology) will continue thriving, learning, improving and there is absolutely no way to stop it. The only reading on the crystal ball is if US companies fail, China will take the lead by leaps and bounds, so the only solution is to keep pushing the cart until the wheels come off or we all cross the finish line, together.
- _override
When it comes to the AI crash honestly my biggest concern is what is going to happen to the job market during and the years following the crash. Not sure how things are in the rest of the world, but as someone in their early 30s working in the IT industry in Sweden I’ve never seen the market this competitive before, even for mid level and senior roles, and it worries me what the future of employment is going to look like.
Maybe those older than me have been through this kind of thing before in 2008-2009 and in the early 2000s but the state of the IT job market in the last year or two has been really concerning to me. Anecdotally I’ve also heard it’s very tough for new graduates these days.
- badrequest
When I joined my first startup, they said if you didn't have a good plan for going public or getting acquired by series C, then the D in series D stood for death. Uber et al raised like a J round. None of the rules around markets or investments are real, it's all vibes-based, and the decision-makers love talking to their ChatGPT mistresses too much to let this all come crashing down.
- laszlojamf
I've been reading a lot of stories like this lately. I'm no business genius, but you'd assume that investors are. Are they just blind or are they burning cash on purpose. What's the steelman argument here?
- minimaltom
Most new tech has insane P/E multiples for a time, for me the litmus test between "capex is high but but within a few multiples" and "capex is insanely overbuilt, ahh collapse etc" is whether revenue growth continues its trend line. I appreciate this is probably giving more grace to the bulls than its worth, but as they say, the market can remain irrational longer than you can stay solvent.
Btw the $2T/year number is just wrong, thats higher than current capex.