The Morning Rant: AI...Is It A Bubble?

So...is AI a financial bubble, or is it an evolution in computing, customer service, data management, and research of all kinds?

Yes.

40% of the S&P500 market cap is directly or indirectly involved with AI, which is a disturbing concentration. But whatever one thinks of AI, and to be honest, I don't think much of it, it has penetrated American and world business very quickly as tangible products and tools. And unlike the typical bubble, we do not (yet) have overcapacity. In fact, RAM prices are skyrocketing because of undercapacity. Is there cheap and abundant credit available to build overcapacity? Not as much as before the Global Financial Crisis, or the oil boom and bust. Will that change? Absolutely. Are the financial markets going to create complex instruments to increase credit availability? You betcha! It is already issuing debt collateralized by GPUs!

The real question is: What will happen to demand for AI products for the foreseeable future? As it becomes more sophisticated, it will gradually replace rote tasks and, increasingly, low-level customer interaction. That is already occurring, and it is occasionally useful, but often extremely irritating. It is also cheaper, or at least has the promise of saving labor costs, so regardless of its quality, it will be implemented by many companies.

But one limitation is power. Everyone knows that AI requires oceans of power, and not the fake, sometimes-on-sometimes-off green crap. It requires nice reliable natural gas, or oil, or coal, or nuclear power to run the vast server farms that it needs. And that is a very good thing. It will provide a stable demand for domestic energy production, and drive the new generation of nuclear. There is nothing like the promise of profit to end American corporation's fixation on green energy.

And if AI is a bubble, and it bursts? What happens to all of that now-excess power generation? Some will get mothballed, but some will be repurposed for the mundane but vital powering of the rest of the economy.

I doubt that AI is revolutionary. For the casual user, it is a bit more than a toy, but not yet an integral part of life. For the dedicated user it is a very useful tool to speed up tasks that are easily doable, but take time. Can it innovate? No. Can it invent? Well, yes, but those are appropriately called "hallucinations," and is the AI industry's dirty little secret!

[Crossposted at CutJibNewsletter and X/Twitter]. If you folks who are on X/Twitter would follow us it would be much appreciated!

posted by CBD at 11:00 AM

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