AI Investment Is Already So Much Larger Than the Subprime Mortgage Bubble That You’ll Physically Flinch

No matter how much is said about the hundreds of billions of dollars hovering over the heads of the technology industry like an anvil in the “AI bubble,” it will not burst. Not only does it refuse to budge, it is growing every day.

In fact, the AI ​​bubble has gotten so bad, that it makes previous market bubbles look like chump change.

According to a new assessment by Julien Garan, a research analyst at MacroStrategy Partnership, the AI ​​bubble is now a staggering 17 times the size of the infamous dot-com bubble, the first of its kind to capture technology stocks tied to online investor hype. Worse still, Garan estimates that AI now accounts for more than four times the wealth trapped in the 2008 subprime bubble, which led to years of protracted crises around the world.

In the case of the dot-com bubble, according to macroeconomist David Henderson, a major economic disaster was avoided as the impact of the stock market rally on US GDP growth was minimal. Unfortunately, this is not the case with investing in artificial intelligence, which now represents a significant portion of our economic growth after years of unchecked hype.

Meanwhile, before the 2008 financial crisis, bullish investors were fueling a doomed real estate market created by banks to turn subprime mortgages into a source of cash. As with those subprime mortgages, AI has shown very little long-term value — at least at this point in its life, Garan points out.

He said the problem is with artificial intelligence Market monitoring“You can’t create a commercially valuable app because it’s either generic [as in video games]which won’t sell, or are regurgitated public domain [as in homework]Or is it subject to copyright.”

It’s also difficult to market the product effectively, he adds, as one AI startup in New York City explained, where subway ads have become covered in aggressive graffiti. All the while, Garan says, the cost of AI systems is growing exponentially, with gains in capabilities rapidly diminishing.

It’s a futile exercise in predicting what might eventually burst the AI ​​bubble, but one thing is clear: we’re already at the point of no return.

“To know if we have reached a dead end we have to watch LLM developers,” the analyst said. “If they release a model that costs 10 times more, probably uses 20 times more compute than the previous model, and isn’t much better than what’s out there, we’re going to hit a dead end.”

In the absence of AI, Garan warns that the economy is already slowing to a crawl, and that it is only a matter of time before the massive growth in the technology sector begins to subside, as it did during the dot-com bubble.

Given the sheer scale of the threat, it seems that the best time to burst the bubble was yesterday. Perhaps the second best time is now.

More on the AI ​​hype: An economist says the bursting of the AI ​​bubble would be incredible for the economy