Azeem Azhar

A boom also involves rapid investment and optimism.

But eventually fundamentals like cash flows and productivity catch up.

So I spent hundreds of hours figuring this out.

I dug through data.

I talked to investors and economists.

I made a number of models.

I compared what's happening today to the bubbles of history.

So all of this led me to a five-gauge framework that helps us understand AI bubble risk in much the way that a pilot uses a number of different gauges to figure out if the plane is flying safely.

These gauges can give us a sense of the path we're on right now and help us understand what we need to look out for in the future.

A key gauge is the investment intensities.

So what is the scale of capital expenditure relative to GDP?

And is that getting unhinged?

When one sector attracts an enormous amount of capital, it bends the entire economy.

Capital moves there, labour moves there, supply chains move there.

And one problem is that any kind of reversal transmits quickly.

If assets are short-lived, that can really compress the payback window.

If we look historically...

The US build-out of the railways in the 19th century had a number of bubbles, and at one point, the annual capital expenditure in building that railway network and the trains approached 3.6% of GDP, right before one of the busts.

In the late 1990s, investment in telecoms infrastructure as we started to digitize telecoms and communications reached about 1% of US GDP level.

And it left behind many, many conduits of dark fiber that we still use today.