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\t\t\tImage via Getty \/ Futurism<\/p>\n
While much of the wealth-owning world is positively smitten by the financial promise of large language models (LLMs) and the data centers necessary to power them, one major tech investor is sounding the alarm.<\/p>\n
Roger McNamee, a career tech financier<\/a> who made successful bets on companies including Google, Facebook, and Amazon, recently penned an ominous essay in The Guardian<\/a>, warning that the AI industry is set to collapse.<\/p>\n By the end of 2025, he writes, the tech industry will have invested over $700 billion in LLMs, a figure he says companies are likely to repeat next year, barring catastrophe. The trouble for tech companies, however, is that catastrophe is likely right around the corner \u2014 and underneath all that AI spending<\/a>, the economy is looking grim<\/a><\/p>\n \u201cIn a technology investing career that now spans 43 years, I have never seen a phenomenon remotely like large language model AI,\u201d McNamee writes. \u201cBig tech, journalists, politicians, CEOs and investors are all convinced that AI is an inevitable Next Big Thing that will change everything in our economy and society for the better.\u201d<\/p>\n The issue, he says, is a catch few have considered: \u201ceven if the technology delivers on its promise,\u201d he continues, \u201cmany, if not most of the current players are bound to fail. The knock-on effects of these failures may be catastrophic, especially for equity investors.\u201d<\/p>\n To McNamee, it\u2019s a rat race between the five or six massive tech corporations building LLM models which are \u201cessentially identical.\u201d These are Google, Amazon, Meta, xAI, and the Microsoft\/OpenAI partnership, depending on how that whole situation<\/a> shakes out.<\/p>\n Each company is burning billions on AI in the hope of becoming the dominant player in the LLM space, basically pursuing a global monopoly<\/a> \u2014 the British East India Company<\/a> of the 21st century.<\/p>\n Of course, as the investor points out, monopolies are necessarily exclusive ventures, meaning whichever tech giant doesn\u2019t eke out the lead will be forced to fight over crumbs.<\/p>\n McNamee\u2019s opinion has the added benefit of doubling as a foundational piece of economic science. As far back as the mid 1800s, economists have noted<\/a> the tendency for capitalist systems to produce monopolies, unless reined in by government regulation to promote healthy competition.<\/p>\n Even the godfather of American Economic thought, Adam Smith, warned about this tendency. In his infamous 1776 tome \u201cThe Wealth of Nations,\u201d he railed against the monopoly<\/a> which the British had over the thirteen colonies: \u201cto found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers.\u201d<\/p>\n The difference here is that those monopolies of yore still produced something of value \u2014 something today\u2019s AI tycoons have yet to accomplish<\/a>.<\/p>\n As McNamee puts it: \u201cthe day may come sooner than many expect when shareholders, directors and executives will demand evidence that the massive investment in LLM technology will generate an adequate return for them. The answer will be no for many, if not most, players, and the reckoning will ugly for everyone.\u201d <\/p>\n The only question remaining is when the other shoe drops \u2014 and how much uglier the financial situation is when it does.<\/p>\n Updated to correct the amount the tech industry is expected to spend on LLMs this year.<\/p>\n