"The A.I. Bubble: Two Outcomes"
by John Wilder
"I remember the dotcom bubble. Back in the late ’90s, everyone was throwing cash at anything with a “.com” slapped on it. Anything. Take Pets.com™, which had the idea that they could take orders for dog food online and that would lead to them being worth a trillion dollars. Instead? They spent $11.8 million on ads which resulted in $619,000 of total sales. But wait, there’s more! Their business strategy was to sell their products at 30% of what they paid for them! Genius! I suppose they thought they could make it up on volume?
That’s just one example, and there are thousands of companies that burned through money like cocaine-addled chipmunks going through nuts. Billions of dollars vanished, but hey, at least we got Jeff Bezos managed to get a slightly used wife out of it. Fast-forward to 2025, and we just may be in Dotcom 2.0: the AI edition. This time, it’s not websites filled with dancing hamsters. Nope. Data centers are sprouting like marijuana in a Colorado hippie’s backyard. Chipsets are piling up like Indians in Canada. The spending is insane on this bubble, and if history’s any guide, the pop could echo for decades.
The source of this frothy mess? Massive investments in AI infrastructure. In the first half of 2025 alone, spending on AI data centers and related gear added more to U.S. GDP growth than all consumer spending combined. This is about $75 billion from AI infra versus $69 billion from folks buying lattes and lawnmowers.
That’s right: Big Tech’s server farms are propping up the economy more than shopping. Companies like Microsoft®, Google®, and Meta® are pouring trillions into building these behemoths, buying up NVIDIA® chips like they’re the last Twinkies® in a zombie apocalypse. It’s not just servers; it’s cooling systems, fiber optics, and enough wiring for George Bailey to finally lasso the Moon.
Why? Because AI needs compute power like a teenager needs a cell phone: continually and without gratitude. So, how long can this bender go on before someone yells “last call”? Analysts are projecting explosive growth through 2030 but they also told people that Pets.com® made sense. Bubbles don’t burst on schedule, they pop when reality bites. McKinsey estimates we’ll need $6.7 trillion worldwide by 2030 just to keep up with compute demands from the various AI products, while the global AI data center market is forecasted to balloon from $236 billion in 2025 to $933 billion by 2030, growing at a scorching 31.6% yearly.
Where will the power come from? 10 gigawatts of new data center capacity will break ground this year alone, with construction at record levels and power transmission delays stretching to four years in some spots. Let’s extrapolate this: If spending keeps doubling every couple of years, as it has since ChatGPT lit the fuse, we’re looking at a timeline where the frenzy peaks around 2028-2030. By then, data centers could consume as much electricity as Gavin Newsom’s blow dryer, and the supply chain for chips and rare earth metals starts buckling.
Analysts predict data center power demand surging, but what if AI hits diminishing returns? We’ve seen it before: the dotcom buildout assumed infinite internet growth, but when the stunning genius of selling products for 70% less than you bought them for didn’t pay off, the house of cards folded. Rapidly.
If AI doesn’t deliver massive productivity gains or the company can’t figure out how to make it up on volume, investors pull the plug. My guess? This bubble could inflate for another 3-5 years, then deflates when ROI reports come in looking like a kid’s lemonade stand profits for some companies.
It’s not just the data centers themselves; the ripple effects are creating mini-bubbles in related bits of the economy. AI’s thirst for electric power is turning it into the new oil. The International Energy Agency projects global data center electricity demand more than doubling by 2030 to 945 terawatt-hours, enough to power Australia several times over if they ever figure out electricity.
This means billions funneled into new power plants, grid upgrades, just to keep the lights on in these silicon sweatshops. Utilities are scrambling: nuclear restarts, solar fields the size of small states, and even deals with fusion startups that sound more sci-fi than spreadsheet. This is trillions spent on infrastructure, from transmission lines to cooling systems that guzzle water like a camel in the Sahara. If the bubble bursts, we’re left with ghost grids and stranded assets, much like the fiber optic cables buried post-dotcom that still haunt telecom balance sheets.
What happens if AI reaches its mature end-state? We’re talking Artificial General Intelligence (AGI) where machines that can do any intellectual task a human can, not to mention Artificial Superintelligence (ASI), where they outthink us like we’re Mexican mall lawyers trying to fix a copier. Some whisper we might already be there, with models like Grok™ or whatever OpenAI®’s cooking up blurring the lines. But assuming we hit it soon, the economy does a backflip. In the AGI/ASI world, productivity explodes: AI handles everything from coding to curing cancer, slashing costs and boosting output. But jobs? Poof.
Economists at AEI outline scenarios where AGI displaces masses of workers: truck drivers, lawyers, artists. Optimists say it will augment humanity, creating new gigs in “AI wrangling” or whatever. The dark side for this case: inequality skyrockets. A few tech overlords own the AIs, reaping trillions, while the rest scramble for UBI scraps. Civilization-wise, it’s transformative: endless innovation, but if ASI “solves” economics without humans, we enter a post-scarcity utopia... or dystopia, where labor is worthless and purpose is a luxury.
If we’ve hit AGI/ASI now (debatable, but let’s play along), the bubble accelerates short-term as companies race to integrate, then crashes when overcapacity hits. Data centers become obsolete overnight if ASI optimizes compute down to a laptop. The fallout? Trillions in sunk costs, like building railroads right before cars took over.
If AI fails (and there is no sign of this) we end up in, at least, a dotcom-style recession. At least. If AI succeeds, in the best case we end up in a strange, post-scarcity world, but a world that hardly needs us. I guess we could make it up on volume?"
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