Is There an A.I. Bubble? And What if It Pops?

From the New York Times, [music] I'm. Natalie Kitroof. This is the Daily. [music]. After years of soaring optimism and. massive investment in [music] the AI. boom, in recent weeks, Wall Street has. begun to seriously question whether that. optimism was overblown and whether. [music] we're actually in a bubble that. may soon pop. And yet, despite all that. hand ringing, Silicon Valley [music] has.

only doubled down, projecting total. confidence about the hundreds of. billions [music] of dollars it's pouring. into the technology. Today, [music] my colleague Cade Mets. explains why. Why tech companies believe. so fervently in AI, why they're willing. to [music] take huge risks to deliver on. its promise, and whether that bet could. backfire. >> [music]. >> It's Thursday, November 20th. [music].

Kade, it seems like the conversation on. Wall Street, among investors, in Silicon. Valley, even in Washington these days, has gone from whether we're in an AI. bubble to the general sense that yes, we. probably are in some sort of a bubble. And yet the companies that you cover. from your perch in Silicon Valley, they're continuing to spend huge amounts. of cash on this. So [snorts]. explain to us what is their.

justification for spending all this. money. >> Well, 3 years after the arrival of chat. GPT, the open AI chatbot that really. started this AI boom, this is clearly a. powerful and in some ways transformative. technology. It's used not only to search. the internet in new ways. It can help. people do specific tasks in a faster and. more efficient way than they did in the.

past. You see businesses adopting. services that can transcribe. meetings. You see other applications in. healthcare. There are ways that this. technology is already changing the way. we live and the way we work and these. companies and this is classic Silicon. Valley see much bigger transformations. on the horizon. These are people,

executives, these titans of industry are. looking not just at what is possible. today, but what they think this. technology will do in the future. >> And the idea is that that future it's. going to be really expensive to build. >> Well, fundamentally, this technology is. expensive to build. It's a mindbogling. amount of money even for people who have. spent decades in the tech industry. Open.

AI alone has said it's going to spend. $500. billion dollar on data centers in the. United States alone to drive these. technologies. Let's stop for a second. and think about what that means. $500. billion in today's money could fund. about 15 Manhattan projects. >> Wow. >> It could fund the Apollo program two. times over. >> The program that sent humans to space. Yeah,

>> exactly. And that's just the money to. drive AI for a single startup, Open AI. All told, if you look at what is being. spent across the globe, not just the US, we're talking about nearly $3 trillion. That's an awful lot of money for a. technology that is transformative. but is in many ways still speculative.

Meaning what they see in the future is. so big. They in many cases believe. they're building what is called in the. valley artificial general intelligence. A machine that can do anything the human. brain can do. Can we just pause? I I. want you to just define this term for. me. Artificial general intelligence. We. hear it a lot. We've talked about it on. the show. It seems kind of hard to get.

your head around. Like what does it mean. actually, Kate? >> It's shorthand for a machine that can do. all of the economically valuable work. that people like you and I do on a daily. basis. They want to essentially replace. all human workers. They want to give the. world a technology that can do any job. That in theory is worth all this. spending. But it's worth saying that we.

don't know how to get to such a goal. That is a lofty thing to reach for. [music]. But so many Silicon Valley executives. remain undeterred. Mark Zuckerberg, CEO. of Meta. >> I would guess that like sometime in the. next 12 to 18 months, we'll reach the. point where like most of the code that's. going towards these efforts is written. by AI. >> Jensen Wang, the CEO of Nvidia.

>> If there's one thing that I would. encourage everybody to do is to go get. yourself an AI tutor right away. We're. going to become superhumans because we. have super AIs. >> They are all making the case that. [music] this spending makes sense. The poster child of this attitude is Sam. Alman, CEO of Open AAI. >> There are not many times that [music] I. want to be a public company, but one of. the rare times it's appealing is when. those people are writing these. ridiculous OpenAI is about to go out of.

business and you know, whatever. I would. love to tell them they could just short. the stock and I would love to see them. get burned on that. He has told the rest. of the world to bet against his company. at their own risk and he continues to. flaunt the company's spending. He and. the rest of the industry are all in, [music]. but what they promised hasn't been. delivered on the timeline that they.

promised. So again, just explain why. they're still going even harder at this. thing if it isn't panning out yet. Obviously, they aren't trying to throw. money in the trash, right? >> Do you know about the concept of FOMO, fear of missing out? That's a lot of. what is driving this. >> Do I ever? >> No one wants to miss out on what could. be the most transformative technology. the world has ever seen. >> And if you don't want to miss out on. that, you have to make your bet now.

these data centers, not only are they. expensive, they take a long time to. build. And so almost by definition, you. have to make a bet on something that's. years down the road. But there may be a. disconnect between the money that's. being spent now and what is possible. just a few years down the road. What. you're saying is that the upside for. these companies of taking this massive. gamble on what is essentially, as you've.

described it, a moonshot of reaching. artificial general intelligence is that. you might be the company that lands on. the moon. The downside though is what if. these companies are wrong? What if there. is no moon landing? >> What if there's no moon landing? Or what. if only one company lands on the moon? or what if only two uh land there and. the rest are left hanging. This is a. situation where even if somebody wins, a.

lot of people are going to lose. Uh Sam. Alman, the chief executive of OpenAI, said as much during a dinner I attended. here in San Francisco this summer. He. said rhetorically, "Are we in a phase. where investors as a whole are over. excited about AI?" In my opinion, he. said yes. He acknowledged. that a lot of this spending was at least. in some ways irrational. And he said.

that there would be losers in this. scenario. After this dinner which made. headlines across the country and across. the world, a lot of people started using. the word bubble. And when I talk to. people here in Silicon Valley and. financial analysts and tech historians. about this moment we're living through, what they often point back to is the dot. bubble of the late 90s and 2000s when.

early internet technologies showed. enormous promise and the valley started. to invest enormous amounts of money in. it. Okay, let's talk about the.com. bubble and and specifically what's. different and what's similar to the. moment that we're in now with AI. >> Well, for people who live through the. bubble, what they often think of is an. enormous number of startups that were.

created and that went public and had. huge valuations even though they had. little or no business model, certainly. no revenues. And then when the market. crashed, when people decided that the. spending was getting ahead of what was. possible, a lot of those companies went. out of business. Companies like Cosmo. that delivered goods straight to your. door, Pets.com, which sent you pet food.

There are famous examples of this, and. that's often what people think of. But. underneath that, and this is where the. analogy really holds up to today, as. those startups were being built, there. were other companies that were building. the infrastructure needed to drive the. internet, that were spending enormous. amounts of money to lay the fiber optic. cable that would carry all that. information across the internet to our. machines. when the bubble burst, a lot.

of those companies went bankrupt. And. that's often what people are thinking. about uh as they look back at the dotcom. bubble. >> Meaning there's a fear that the. companies that are laying the fiber. optics of the AI revolution, which is, you know, the analogy would say these. data centers that are housing all of. these chips, that those companies could. go under. That's the fear. Just like. then you have companies spending.

enormous amounts of money on the. infrastructure needed to drive on this. The difference is they are spending a. lot more today than they did 25 years. ago. >> But I'm struck by the fact Kate that. obviously the dot bubble it burst but. there were many many winners right. I. mean, we still have, as you said, a lot. of these companies that were born in. that era. So, what's the takeaway there?

>> This is a great point. So many of the. applications that were promised by all. those startups that went out of business. are part of our daily lives today. Amazon delivers our pet food. Other. companies deliver our real time internet. video. So many of the things that were. promised then we have today and we're. actually using that fiber optic cable. that was laid and it sat there dormant.

for many years and we are now reaping. the benefits. It's just that it didn't. happen as quickly as a lot of people. thought. So for Silicon Valley, it. sounds like the lesson of that bubble. could very easily be, sure, some people. lose in a situation like that, but. broadly the bet on the internet was. worth it. It paid off, so take the bet. So many people I talked to say that very.

thing. [music]. They point out that in the end, despite. the bubble bursting, eventually. everything turned out as promised. They. make that analogy and that's why they're. making these enormous bets today. They. acknowledge there might be losers, as. Sam Alman did during that dinner, but. they [music] think it's going to work. out in the end. The concern however among some in the.

valley and some in New York where the. financial analysts are [music] is that. the risk being taken on by some. companies is far larger than in the. [music] past. And if that's the case and. the bubble bursts again, the fallout. could be far more significant. [music]. We'll be right back.

Okay, Cade, let's get into the scary. thing that you brought up before the. break, that the risks here could be much. more significant. Talk to me about that. Well, as I discuss this with all sorts. of people, including technologists, but. also financial analysts, the other thing. that often comes up is the housing. bubble of the late 2000s, which was a. much more serious thing. People generally agree that this is not.

what we're going through at the moment. Let's not go that far. That said, they. do point out that there are elements. that we're seeing now that were also. present then. >> What are those elements? What what's. worrying them? >> Basically, this is about the enormous. amount of debt that is being taken on to. build these data centers, the enormous. amount of money that's being borrowed to.

build them. And as you look at that. debt, it's hard to know how much there. is and who is holding the debt. If that. debt is spread across a lot of. companies, then you have more systemic. risk. You have greater risk that could. damage the rest of the economy. >> Right? That was the thing that made the. 2008 crash so bad. the amount of debt. that had piled up under the housing.

market. But these tech companies, they're some of the richest corporations. in the world. So why are they financing. the AI boom with debt? Why is that. happening? >> Well, some companies are not taking on. debt to do this. Some companies like. Google and Microsoft and Meta pull in. billions of dollars in revenue every. year. They can afford to essentially pay.

cash for these giant data centers. But. there's so much interest in AI. There's. so much demand for the computing power. that comes out of these data centers. that [snorts] we're seeing all sorts of. other companies build these giant. facilities when they don't have the. money to do it. Even relatively big companies like. Oracle, the cloud computing giant, is. having to take on debt to build data.

centers. And then you have all these. smaller companies that most people on. Earth have never heard of with names. like Cororeweave, Lambda, and Nebus. >> Definitely never heard of them. >> They are certainly taking on debt to do. this. Cororeweave, a company based in. the New York, New Jersey area, has told. financial analysts that for every $5. billion in data center infrastructure. they build, they have to take on almost.

$3 billion in debt. >> Whoa. >> In the end, they think that they will. pull in the revenues needed to pay back. those debts. But ultimately, if the AI. technology does not pull in the money, then you can't repay those debts, and. that's when you have a problem. >> Got it. And I was struck by something. else that you said, Kade, which is that. when you look at the debt here, it's. actually hard to know how much of it.

there is. What's that about? Why Why. don't we know that? >> Well, some of the debt is taken on in. the way you might think. These companies. go to a bank and they borrow the money. and you know exactly who lent it, who. borrowed it, how much it is. But. increasingly, we're seeing other deals. where it's hard to see where the debt is. and how much of it there is. A lot of.

the money is being lent by what are. called private credit institutions. [snorts]. legally you can't see inside these. companies. The other thing that's. happening is you're seeing the rise of. these securities. They call them. assetbacked securities. Something that came up during the. housing bubble that people may be. familiar with. >> Reminiscent in a not great way. >> These securities can be bought and sold.

and traded. And that means you don't. know in the end who is holding the debt. >> [snorts]. >> You're saying there's this idea, right, that there could be real systemic risk. baked into all this debt, that the. leverage in the system is just hard to. pin down. [clears throat] And so, we. really can't actually know at this point. how exposed we all might be to it. >> That's right. The key word there is. could. There could be a problem. It's. hard to know,

>> right? It's obviously a really murky. thing, but is there anything that we. know definitively about the magnitude of. the debt in the system? About how big. we're talking? >> As I said earlier, it's projected that. companies across the world will spend. nearly $3 trillion on these data. centers. Analysts at Morgan Stanley. project that about a third of that will. be debt. $1 trillion.

Wow. [snorts] Just pulling back from. what you're saying, it sounds like it's. actually quite hard to know what kind of. bubble we may be in right now and how. bad or not bad it may be. I mean, there's the dot example, right, which. had fallout, but it sounds like was. relatively contained and produced all. these winners. And then there's the much. riskier version of things closer to.

elements of things that we saw during. the housing crisis that could have a. much broader effect. And because of all. that's unknowable in all this, we can't. really tell. Is that right? >> We can't. If things do burst, it's hard. to even know when that might happen. And. people like Sam Alman and Sundar Pachai, the CEO of Alphabet, the Google parent. company, have acknowledged this. uncertainty. You know, there's this. irony that I've been thinking about in.

all this, which is that in some ways, the worst case scenario for the. companies that are invested in the AI. boom, right, is that they never actually. reach AGI, that point where computers. replace human workers on mass, where AI. becomes as smart as the human brain, or. that that really takes a very long time. But I think there's a lot of us human. workers who might actually view that. worst case scenario for Silicon Valley.

as a relief. Like people might be happy. generally to hear that we aren't going. to be replaced on mass tomorrow. And I. wonder what you make of that tension, the fact that the future that they're. building toward here may not actually be. a future that all that many people. actually want. It's a great point. As we think about.

this moment, we need to realize the. realities of this technology. It is very. powerful in many ways. healthc care. being perhaps the prime example, drug. discovery, we are on the path towards some amazing. things. At the same time, we're on the. path towards some things that are. concerning. If things don't progress at the pace.

that Silicon Valley says, this could. cause problems across the larger. economy. as we talked about, but it might give us the time we need to. continue to think about all the big. questions that hang over this technology. and that hang over our future. It might give us time to prepare for. that future.

>> Well, Cade, thank you so much. >> Glad to be here. [music]. On Wednesday afternoon, Nvidia announced. that in the most recent quarter, its. profit was $ 31.9 billion, [music] up. 65% from a year ago. And it reported. record sales. The news buoyed its shares in. aftermarket trading and was seen as a. sign the jitters on Wall Street over AI. had been calmed, at least for now.

We'll be right back. Here's [music]. what else you should know today. On. Wednesday, President Trump announced on. [music] social media that he'd signed. legislation calling on the Justice. Department to release its files on. Jeffrey Epstein [music] within 30 days. But Trump's signature doesn't guarantee. the release of all the files. The bill.

contains significant exceptions, including a provision that allows. [music] records to be withheld if they. jeopardize an active federal. investigation. Last week, Trump demanded [music] that. the Justice Department launch an. investigation into Democrats mentioned. in some of the files, and Attorney. General Pam Bondi said [music] she'd. started one. That could give the. administration another reason to. withhold documents. [music]. And in a remarkable hearing on. Wednesday, a federal judge grilled. government prosecutors [music].

pursuing charges against former FBI. director James Comey, revealing serious. vulnerabilities in their case. In. response [music] to the judge's. questioning, Lindseay Halligan, the US. attorney handpicked by Trump to bring. the case, [music]. admitted she'd never shown the second. and final version of the Comey [music]. indictment to the full grand jury before. the four person signed the charging. document. Comey's lawyers immediately. seized on that irregularity, [music]. saying it justified dismissing the case.

entirely. The judge didn't immediately rule on. Comey's [music] claim that the case had. been filed as an act of retribution by. Trump, but he seemed to be leaning in. that direction [music] and in favor of. throwing out the charges altogether. The. dismissal would be a humiliation [music]. for Trump's Justice Department in a. prosecution that's appeared to be slap. dash from its [music] very inception. Today's episode [music] was produced by. Ricky Novetski, Shannon Lynn, and Carlos.

Prito. It was edited by Mark [music]. George and Lisa Chow. Contains music by. Dan Powell and Marian Lozano and was. engineered by Alyssa Moxley. [music]. That's it for the Daily. I'm Natalie. Kitroof. See [music] you tomorrow.