Plain English BEST OF: This Is How the AI Bubble Could Burst
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What is the main topic discussed in this episode?
If you're a fan of the inner workings of Hollywood, then check out my podcast, The Town, on the Ringer Podcast Network. My name's Matt Bellany. I'm founding partner at Puck and the writer of the What I'm Hearing newsletter. And with my show, The Town, I bring you the inside conversation about money and power in Hollywood. Every week, we've got three short episodes featuring real Hollywood insiders to tell you what people in town are actually talking about. We'll cover everything from why your favorite show was canceled overnight, which streamer is on the brink of collapse, and which executive is on the hot seat. Disney, Netflix, who's up, down, and who will never eat lunch in this town again.
How much are American tech companies spending on AI?
Follow The Town on Spotify or wherever you get your podcasts.
Hi everybody, Derek here. In December, my wife and I welcomed our second baby girl into the world. I'm gonna be taking some time off, but we wanted to keep the pod going through the holidays. So we're gonna be re-airing some of our favorite episodes from the last 12 months, a kind of best of compendium. And this list includes interviews that really stuck with me and others that really stuck with you and you had lots of feedback and thoughts on, including this one. I'll be back in the new year with fresh content, but until then, happy holidays and happy new year. Today, the AI bubble.
What historical parallels exist for AI investment and economic bubbles?
This year, American tech companies will spend about $300 to $400 billion on artificial intelligence. That's more in nominal dollars than any group of companies has ever spent to do just about anything. And notably, these companies are not anywhere close to earning back that $400 billion that they're about to spend. This is why you're starting to hear some people wonder if the AI build-out is turning into the mother of all economic bubbles. Sometimes you'll hear this case from critics of the technology. Critics will sometimes point out that we're on track to spend trillions of dollars this decade building something that might be all smoke and mirrors. I'm more interested, though, in the boosters of artificial intelligence.
They'll sometimes argue that we are living through a transformative tech akin to the creation of the internet or the railroad or the telegraph. I think they might be right. I also think they don't realize what being right would imply.
What implications does AI spending have on the US economy?
The infrastructure build out of the internet created an enormous bubble in the late 1990s and early 2000s. The infrastructure build out of the telegraph created another bubble in the 19th century. The construction of the transcontinental railroad system, as we explained in a previous episode, created several bubbles, ending in the Panic of 1857, the Panic of 1873, and the Panic of 1893, a half century of panics. In the 20th century, radio was a bubble. The dawn of automobiles and aviation companies, also quite bubblicious.
Who is Paul Kedrosky and what insights does he provide?
In short, if AI's boosters are right with their comparison of AI to the greatest technology of the last 150 years, their own analogy anticipates that their product too will pass through a calamitous crash on the way to changing the world. This should absolutely scare you if you care about the US economy. Half of GDP growth comes from infrastructure spending on AI, on data centers, chips, and energy. More than half of stock market appreciation in the last few years comes from companies associated with AI. If you open up the hood of these biggest companies, Meta, Microsoft, Alphabet, Amazon, AI infrastructure spending, or CapEx, accounts for, you guessed it, nearly half of their revenue. If the AI spending project blows up in the next few years, as our next guest says it might, the implications for technology, the economy, and politics would be immense.
Paul Kudrowski is an investor and writer. Today we talk about the AI boom, how it works, who's paying for it, and how they're financing it. We put the AI build out in historical context, and then we spend a great deal of time walking through what could go wrong and when it might go wrong. I'm Derek Thompson. This is Plain English.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:33
2
How much are American tech companies spending on AI?
0:33–1:17
3
What historical parallels exist for AI investment and economic bubbles?
1:17–2:15
4
What implications does AI spending have on the US economy?
2:15–2:50
5
Who is Paul Kedrosky and what insights does he provide?
2:50–5:10
6
How does AI infrastructure spending affect job markets?
5:10–6:15
7
What are the risks of the current AI investment strategy?
6:15–8:07
8
How might the AI bubble impact future economic conditions?
8:07–56:47