I’ll just repeat that. Over the last six months, capital expenditures on AI—counting just information processing equipment and software, by the way—added more to the growth of the US economy than all consumer spending combined. You can just pull any of those quotes out—spending on IT for AI is so big it might be making up for economic losses from the tariffs, serving as a
private sector stimulus program.
To me, this is just screaming bubble. I’m sure I’m not alone. In fact I
know I’m not alone. I’m thinking especially of
Ed Zitron’s impassioned and thorough guide to the AI bubble; a rundown of how much money is being poured into and spent on AI vs how much money these products are making, and surprise, the situation as it stands is not sustainable. Worrying signs abound, and not least that so far, the companies benefitting most from AI are those selling the tools to simply build
more of it (Nvidia, Microsoft), or who have monopolies through which they can force AI tools onto users en masse with limited repercussions (Google, Meta). Consumers routinely evince negative sentiment towards AI and AI products in polls, outweighing enthusiasm. And meanwhile, what I’d say is the only truly runaway, organically popular AI product category, chatbots, largely remain big money losers due to the resources they take to run.
As such, these massive valuations feel fishy. I asked Ed for his thoughts on Microsoft’s $4 trillion earnings report. He said:
Microsoft broke out Azure revenue for the first time in history, yet has not updated their annualized revenue for AI since January 29 2025. If things were going so well with AI, why are they not providing these numbers? It's because things aren't going well at all, and they're trying to play funny games with numbers to confuse and excite investors.
Also, $10bn+ of that Azure revenue is OpenAI's compute costs, paid at-cost, meaning no profit (and maybe even loss!) for Microsoft.
Look, I’m no prophet, clearly. I’ve predicted that we were probably witnessing the peak of the AI boom *nearly a year ago*, and while I think I was right with regard to genuine consumer and pop cultural interest, obviously the investment and expansion has kept right on flowing. It’s to the point that we’re well past dot com boom levels of investment, and, as Kedrosky points out, approaching railroad-levels of investment, last seen in the days of the robber barons.
I have no idea what’s going to happen next. But if AI investment is so massive that it’s quite actually helping to prop up the US economy in a time of growing stress, what happens if the AI stool does get kicked out from under it all?
There could be a crash that exceeds the dot com bust, at a time when the political situation through which such a crash would be navigated would be nightmarish. There could be a smaller bust, which weeds out the less monopolistic and unprofitable AI companies, or drives them to survive with the help of the tech giants or
the ever more AI-friendly US state. Who knows. It does, however, seem increasingly unlikely that there will be
no correction at all. (I also should say that I find it implausible any crash will simply wipe out AI as a product category, either; as a surveillance and automation tool, AI is simply too alluring to business, and as a chatbot product, it’s already addicted millions of users. There are fresh challenges here.)
