A version of this story originally appeared on TKer.co
Will AI turn out to be a bubble like the one we saw 25 years ago with the Internet boom?
Financial author Phil Rosen asked me what I thought of his show, “”
I think we should both be optimistic about the future, but also be concerned about how things will play out as we get there.
Whenever you achieve a revolutionary breakthrough in innovation and technology, the excitement surrounding the opportunity will inevitably lead to overspending.
As I have been writing for two years, I think that the . , businesses have identified ways to use AI to do things faster and often at lower cost. This is the fundamental offering of productivity-enhancing technology: computing and/or money.
People will pay to save time and money. And Economics 101 teaches us that where there is demand, there is supply.
And that deal comes with eye-popping investment amounts, with mountains of capital spending for cash funding, tons of venture capital flowing into new startups, and plenty of savings reallocated to publicly traded companies advancing AI technology.
Many of these investments will prove lucrative. And many things will fail.
This behavior is not new. This echoes past technological advances.
In , Warren Buffett made this observation about the automobile boom of the early 1900s.
“It transformed the country,” he said. “There were at least 2,000 companies that got into the auto business because there was clearly an incredible future. And of course, you remember in 2009 there were three left.”
Another example of a once-hot industry is rail transportation.
We often talk about how big the tech sector has become as a share of the stock market, drawing parallels with the dot-com bubble. But it’s not comparable to rail transportation a hundred years ago.
“At the start of the 20th century, markets were dominated by railways, which represented 63% of stock market value in the United States and almost 50% in the United Kingdom,” estimate UBS analysts.
I don’t know much about the 1800s. However, my understanding is that there were hundreds of railroad companies funded by those eager to profit from building the country’s logistics infrastructure. And the rise of the industry was also accompanied by .
Railroads and automobiles continue to deliver on their promises to save us time and money. But we wouldn’t have what we have today without overinvestment and some financial explosions.
