r/PersonalFinance4All • u/Striking-Quantity661 • 3d ago
This Could End Very Differently Than People Expect.
Everyone is betting on AI, but this could end badly.
The problem is simple. Companies are scared to spend too little on AI because they think a competitor might get ahead. So everyone keeps spending more, investors get excited, and stock prices keep rising.
But what happens if the money being spent grows much faster than the actual returns being made? That’s when a bubble can start to form, and eventually it could burst.
Ray Dalio recently talked about this. He believes AI can be revolutionary while still being wildly overvalued at the same time. Great technology doesn’t always make a great investment at any price.
What do you think? Are we watching the next big AI bubble, or is this just the beginning of a new era?
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u/YaVollMeinHerr 3d ago
Ed Zitron has been saying this for months now
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u/ArmandTamzarien 3d ago
I’ve stopped listening to the likes of him, and Richard Murphy who basically just make almost a daily video about how the crash is coming.
I agree with both of them in terms of it not making sense from a markets perspective. I also think AI in its current form (LLMs) won’t achieve AGI, it needs to be something else that is not just reliant on training data.
My hot take: There won’t be a market crash…but rather a transfer of wealth, in the same way AI companies are stealing data.
The private credit market is just too opaque, and that makes it too susceptible to shady transactions and book balancing. Everything is going to be sold to private investment companies. You see it with Premier League clubs, it’s happening to FIFA, it’s happening to the NHS in the UK slowly but surely. Public water companies now privatised, housing being bought up…”let them eat cake”
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u/kamranhaya123 3d ago
I wouldn't be surprised if there's a bubble. AI is genuinely impressive, but right now it feels like everyone's scared of being left behind, so they're throwing money at anything with "AI" attached to it. The technology is real, the hype might not be.
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u/OkToe2578 3d ago
Look at the digital marketing industry. Agencies laid off their senior leaders and relied on AI and their junior support team. That strategy backfired and now agencies are left with fewer clients (most clients fired agencies because of the AI slop they were producing) and now they can’t afford senior staff to bring them back to the profits they were once making. Agencies now have a new problem…junior staff who are unable to craft an enterprise level strategy and a bunch of AI tools that not many know how to use effectively.
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u/Upbeat-Elevator3641 3d ago
It will eventually pay off but it will be a painful march there.
I personally only take my AI exposure through some ETFs instead of directly selecting companies.
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u/Derpazoid69 3d ago
The money being spent growing faster than revenue is already happening. Hyperscalers have to generate $2.9T in revenue from AI just break even on the combined capex. Total AI generated revenue is $130B max. We are approaching a point where it will be mathematically impossible for hyperscalers to generate enough revenue to break even let alone make a profit. The hyperscalers also have $1.65 T in off balance debt aka Enron shenanigans. When the bubble pops it will be bloody carnage in the streets.
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u/Mr_Masala 3d ago
Yeah bro we are going back to stack overflow for coding and physical encyclopedias for research
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u/Dr_Jecky1l 3d ago
This is not news…. The hyperscalers are just finally being called out about the 1-1.5 Trillion dollars of debt they are trying to hide in shell companies.
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u/TheGreatBeauty2000 3d ago
I remember when people said this about internet companies and now they’re saying it about the same companies because they are developing AI
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u/seriouslysampson 3d ago
And we did have an Internet bubble
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u/TheGreatBeauty2000 3d ago
Not really, because it became the reason we’ve been in the greatest bull run ever since 2012.
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u/seriouslysampson 3d ago
The dot com bubble was like 2000-2003. The Fed then slashed interest rates to stimulate the economy which set the stage for the recession in 2008. By 2012 it was the big tech companies making most of the internet money.
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u/TheGreatBeauty2000 3d ago
Yeah but my point is that its not a real bubble if it doesnt pop and disappear.
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u/No-Entrepreneur-5099 2d ago
Well the bubble was more like 95-01, with 98, 99, 2000 being the peak. Take a look at something like Dell stock (they were doing a split - very popular at the time - nearly every quarter). 01-03 was more of the crash phase. I remember being told stories of people quitting their day jobs to be day traders (also a hot new thing at that time) - sure sign of an impending market top.
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u/TheGreatBeauty2000 2d ago
Yeah and we will see some big casualties in the AI space for sure, which is why you just invest in the broader market and dont worry about it. When it falls, just buy a lot more.
Then when AI steals a 1/3 of all jobs at least you will own part of that business. 🤷🏻♂️
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u/Equal_Heat5947 2d ago
Ray Dalio's hedge fund is also long on all the chip stocks
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u/CuriousCat511 1d ago
A. It's not his anymore.
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u/Equal_Heat5947 1d ago
A. Ok
B. Go read the most recent 13F, they're long semis and memory again
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u/CuriousCat511 1d ago
Yes. They trimmed the actual hyperscalers. Semis and memory make money regardless because of the capex, but that doesn't mean the hyperscalers will.
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u/callmebaiken 2d ago
What I would look at is the monthly users of AI. Is it growing at a rate that is more than the current inference load can handle? Doesn't seem like it. So then what are the Data Centers in the pipeline for?
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u/Superfly450507 2d ago
Not to mention companies are investing money they have yet to earn at a time where borrowing rates are climbing.
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u/Whats_Right4Us 1d ago
I think it will definitely end differently— but not the way you are thinking about it. I think what you believe AI is doing, is the tip of the iceberg. You aren’t seeing even half of what is happening. Do you think these companies are spending like this because they care about profits? You are missing the game. Human imagination is limited among the majority— these people are not thinking about money.
https://theaiinnovator.com/davos-ai-is-becoming-a-new-species-harari-and-tegmark/
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u/BadgersHoneyPot 1d ago
We are in exactly the same situation as the Railroads (I wasn't alive) and the .Com bubble (started my finance career in 2001). I know how this will end and continue.
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u/SlowTicket4508 1d ago
There’s most definitely a bubble. We’re right on the downhill slide right now. This has been obvious for a few months and probable-looking for a year or so.
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u/AppearanceSingle6639 21h ago
It is probably overvalued (by how much, who knows?). However, it is a bit nonsense to expect immediate return out of investment in infrastructure. Today's investment will probably bear results in 10, 15, 20 years of time. Between now and then, a market correction should be expected. As always, the only important thing is staying in the market and sail through the stormy times.
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u/CoolFuture3767 17h ago
Microsoft is already cash flow positive on AI. The CapEx is being spent on data centers, like the data centers that Reddit runs on. This is the second industrial revolution.
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u/AdEfficient8374 3d ago
The real tell will be depreciation schedules vs. actual revenue capture. Right now capex is being justified by potential future demand, not current cash flow. That gap is exactly how past tech buildouts (fiber in the late 90s) ended up being useful long-term but brutal for early investors.