That means there is a manifest opportunity for vast savings to businesses (and theoretically, to consumers), while also clear potential for job losses at an extraordinary scale. There is also a still boiling tension between content creators, from musicians to filmmakers to social media stars to consultants, all of whom have seen their work devoured by AI companies to train their models, almost never with explicit consent.\u00a0<\/p>\n
Too much, too soon?<\/p>\n
Then there\u2019s the increasingly loud chatter about an AI bubble. Part of what scares even veteran financiers used to big numbers is how closely tied all these companies are becoming. One recent Anthropic deal <\/a>typifies the cosy nature of financing in the sector. It involves the company agreeing to spend $30bn with Microsoft, on Azure servers running Nvidia chips, while Microsoft and Nvidia agree to invest \u201cup to\u201d US$5bn and US$10bn respectively in Anthropic. It means any failure can\u2019t help but ripple through the system.<\/p>\n The circular nature of the dealmaking, the vagueness around timelines and sometimes imprecision about just what is being bought and sold have led increasing numbers of observers and investors to wonder about whether this market is getting much too frothy for its own good. Bubble theorists don\u2019t doubt the promise of the technology, but do worry that its adoption cannot possibly keep pace with its costs.\u00a0<\/p>\n This is because it\u2019s so reliant on hardware, most notably chips, datacentres and power plants, each with their own complexities. Chips are worked very hard, so can be burned through in as little as a couple of years. Datacentres require land acquisitions and complex permitting from often resistant local populations. And so-called hyperscale datacentres are so big they often require their own power plants, which are in even shorter supply than chips.<\/p>\n The scale of this challenge was elegantly, if chillingly, put by investor and writer Paul Kedrosky on a recent episode<\/a> of Bloomberg\u2019s Odd Lots podcast. He described AI as a \u201cmeta-bubble\u201d \u2013 that is, a bubble which combined attributes of most previous bubbles: real estate, technology, loose credit and a notional government backstop. That last part relates to the national security arguments which have been made to beating China in the AI arms race. These mean there is a strong belief that if things go wrong, the government will pick up the tab. \u201cIt\u2019s like we said, you know what would be great? Let\u2019s create a bubble that takes everything that ever worked and put it all in one,\u201d said Kedrosky.<\/p>\n Even the founders themselves are starting to get the wobbles. Altman said in August<\/a> \u201cAre we in a phase where investors as a whole are overexcited about AI? My opinion is yes.\u201d Amodei recently described the current situation as \u201cvery concerning\u201d at the New York Times\u2019 Dealbook conference. Even Softbank, the Japanese investment conglomerate known for its starry-eyed view of tech\u2019s future, sold its entire US$5bn Nvidia stake<\/a> in November.<\/p>\n The global consequences of a bust could be enormous. There is a tight loop of investment, loans, chips, compute and cloud infrastructure involving a small handful of very leveraged companies and lenders. Many analysts see the upward curve of spending by businesses and consumers never steepening sufficiently to generate a return on investment<\/a>. As much as half of all US growth has been driven by the AI boom, and its collapse could see huge failures in public and private markets. The likes of Microsoft, Google and Amazon could withstand it; but OpenAI, Anthropic, xAI and their lenders could collapse, incinerating billions of dollars along the way.<\/p>\n Where does that leave New Zealand?<\/p>\n Late last week the Herald ran a piece under this somewhat alarming headline:<\/p>\n It\u2019s a fairly pointy headline for a piece with no direct quote referring to an AI crash. In fact Willis was cautiously positive toward AI investment when contacted by The Spinoff and asked about any concerns she might have for investments in the sector. \u201cNot all of the tech giants developing AI are going to win so there will be downs as well as ups on global stockmarkets,\u201d she wrote via email.<\/p>\n \u201cHowever, there are signs that AI is delivering productivity gains. So our job as government is not to try to predict stockmarket trends, but to maximise the potential upside of the new technology while ensuring New Zealand is able to withstand the next economic shock, whether it is in the form of market upheaval, trade disruption or a natural disaster.\u201d<\/p>\n Still, it is essentially a statement of the extremely obvious that as a small trading nation, if there\u2019s a major crash in the most powerful growth sector of US markets, we will be impacted. There will be financial and technological implications for us if the whole thing blows up.<\/p>\n The financial aspect is more charged because New Zealand has endured a long period of economic doldrums, suffering two recessions and a lengthy \u201cvibecession\u201d<\/a> in recent years. Put simply, we\u2019re not ready for another downturn, as it doesn\u2019t feel like we ever got out of the last one.<\/p>\n That is in part because the AI boom \u2013 which estimates suggest has contributed<\/a> half or more of all US growth this year \u2013 has largely passed us by. There are no frontier AI businesses founded here, despite it being ubiquitous in investment decks. The hyperscale data centre boom has swerved New Zealand, potentially due to high and erratic power prices, with Amazon the most high-profile to withdraw<\/a>. There is a vigorous debate in Australia about a national AI strategy, one which has seen culture and creatives butting heads (and winning) with tech founders. Still, it\u2019s on the global map \u2013 OpenAI has opened a Sydney office<\/a>, whereas here it\u2019s more plaintive exhortations from government and corporates for more businesses to use the technology.<\/p>\n Could we be lucky being late?<\/p>\n Paradoxically, being slow to nowhere on AI might prove to be a very good thing if the bubble pops, according to several analysts. Ben Reid runs the technology consultancy Memia and writes a widely-read AI newsletter on Substack<\/a>. He told The Spinoff that while he believes AI is a transformative technology with huge potential to help Aotearoa, he also believes investment has likely got ahead of adoption, creating a clear and very large bubble, and that \u201cit\u2019s hard to believe it\u2019s not going to pop any day now.<\/p>\n \u201cThat said, New Zealand\u2019s been in a near-recession for much of the last couple of years already and technology is a relatively small part of the overall economy \u2013 so I\u2019m not convinced there is much further to contract,\u201d says Reid.\u00a0<\/p>\n This sentiment is echoed by the economist Shamubeel Eaqub, of the investment managers SImplicity. \u201cOn the technology, I expect it to be like the rise of the internet through the dot com era. That is, the massive infrastructure and progress being made through the current period of extraordinary investment will reap huge technological progress in coming decades. It mirrors the kind of investment surge in railways for example.\u201d<\/p>\n Those comparisons are frequently made \u2013 and compelling. The railroad boom in the US through the mid-late 19th century saw huge investment along with multiple booms and busts, leaving behind a transformative technology which opened up vast tracts of land to agriculture and helped create cities from bare land. The dotcom bust saw dozens of over-hyped companies fail, but survivors like Google and Amazon became enormously powerful building blocks of the modern internet. In both cases, some investors took heavy losses in the short term but the infrastructure built survived the busts and powered booms to come.<\/p>\nEek!<\/p>\n