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Fears of an AI bubble are rising<\/p>\n
CFOTO\/Sipa USA\/Alamy<\/p>\n<\/p>\n
The hundreds of billions of dollars being spent on AI seem to have inflated a global financial bubble that\u2019s now fit to burst, leaving companies and investors at risk of holding vast debt that cannot be serviced by the meagre revenue brought in by current AI services. But what does that mean for the future of the technology underpinning this financial feeding frenzy?<\/p>\n
In recent weeks, warnings of a potential AI bubble have come from the International Monetary Fund<\/a>, the Bank of England, the head of the largest US bank<\/a>, and even OpenAI boss Sam Altman<\/a>. \u201cThis has not just been a a stock market bubble, it\u2019s been an investment bubble, it\u2019s been a public policy bubble,\u201d says David Edgerton<\/a> at King\u2019s College London.<\/p>\n The circular nature of some of the deals between major AI players is also raising eyebrows. For example, Nvidia, which builds the GPU chips that are powering the AI boom<\/a>, recently invested up to $100 billion into OpenAI so that the company\u00a0could build a new data centre full of Nvidia\u2019s own chips. OpenAI, in turn, has agreed a deal that could see it ultimately take a 10 per cent stake in Nvidia\u2019s rival chipmaker, AMD<\/a>.<\/p>\n Concern about the AI bubble bursting is also thrown into sharp relief when you realise the scale: at least $400 billion is being spent annually on data centres, according to Morgan Stanley Wealth Management. And while US GDP rose by 3.8 per cent<\/a> in the second quarter of the year, Jason Furman at Harvard University estimates that if you removed data centres from the equation it would have barely grown 0.1 per cent over the whole first half of the year<\/a>.<\/p>\n Carl-Benedikt Frey<\/a> at the University of Oxford says this kind of exuberant deal-making isn\u2019t unusual in the history of technology \u2013 in fact, it would be unusual if the global economy managed to invest in infrastructure for a new technology at precisely the right pace to meet demand. \u201cIt\u2019s quite usual that you overbuild: the same thing happened with the railroad boom, the same thing happened with the dot-com bubble,\u201d he says.<\/p>\n The question is whether the fallout from an AI bubble would just harm the companies involved, or could have wider impacts. Frey points out that many of these hugely expensive data centres are actually being built \u201coff balance sheet\u201d. This involves the creation of new companies backed by external investors or banks that build and own the assets, taking on both the risks and potential rewards.<\/p>\n As a result, we don\u2019t know enough about who is exposed to this risk. A data centre could be financed by a dozen technology billionaires, or it could be high-street banks \u2013 and if their losses are large enough, then a banking crisis could send shockwaves throughout the wider economy. \u201cThat\u2019s not to say that there\u2019s an imminent financial crisis, but that it\u2019s a bit opaque. And when things are opaque, there\u2019s usually some risk,\u201d says Frey.<\/p>\n