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Far be it from tech writers to chart yield curves or forecast jobs data, but it doesn\u2019t take a tenured econ professor to notice the sorry state of the financial world. Thanks to Trump\u2019s disastrous invasion of Iran, gas has surged to $9 a gallon<\/a> in some places, the Dow and Nasdaq have officially entered a correction<\/a>, and Bloomberg TV anchors are actively weighing<\/a> the possibility of a full-blown \u201crecession\u201d on the airwaves.<\/p>\n If they\u2019re right, people across the US \u2014 indeed, the world \u2014 are in for plenty of financial pain. And though we\u2019re fresh out of pity, the effects on the AI industry, which has long been speculated to be in a financial bubble<\/a>, could be catastrophic.<\/p>\n Well before the US war on Iran kicked off in late February, there were already trillions of dollars stuffed into the AI industry \u2014 a bottomless pit swallowing every last penny it comes across. Even several years into the goldrush, AI still has yet to deliver any returns indicating that the world\u2019s financiers might one day make their money back, let alone turn a profit.<\/p>\n As more and more capital is fed to the machine, the rest of the economy only becomes more dependent on its eventual success. Depending on which economist you ask, the US would have found itself in a functional recession<\/a> back in the first half of 2025 had it not been for this rampant tech spending.<\/p>\n Should anything trigger a recession under these conditions, that capex spending would effectively \u201cevaporate,\u201d as the Economy Policy Institute\u2019s Josh Bivens argued<\/a> in a macroeconomic report published earlier this month. As Matteo Wong and Charlie Warzel argue in the Atlantic<\/a>, such a crash would be catastrophic for everybody: a polycrisis for the ages as tech firms, investment portfolios, banks, and private lenders grapple with obscene amounts of debt.<\/p>\n Under this scenario, data center builds<\/a> would ground to a halt \u2014 significantly stalling AI\u2019s future growth prospects \u2014 not to mention job losses<\/a> in companies feasting on the overabundance of cheap capital.<\/p>\n Whatever AI industry emerges from the rubble if it all comes crashing down will surely be significantly different from the one we\u2019ve experienced over the last few years \u2014 smaller, more realistic, and, hopefully, grateful just to be alive.<\/p>\n