"Bubbles Within Bubbles Within Bubbles"
by John Wilder
"As we approach the end of 2025, the U.S. economy resembles a science-fair volcano built on baking soda, hype, construction paper, speculation, bubblegum, vinegar, and greed. I’ve written about this before, and, well, it’s so big it keeps dragging me back in.
The rot is birthed by several mothers: cheap cash, the need to put it somewhere, and a new technology whose benefits are (at this point) opaque at best. Let’s put down that you already know “money printer goes brrrrrrrr” so we’ll go back to A.I. Again.
At the center of this precarious structure is what everyone who isn’t high on their own supply knows is an A.I. bubble. Large numbers of people (including me) recognized the housing bubble for what it was, but it kept on going because momentum is one hell of a master. A.I. has inflated stock prices, diverted resources like a drunk wine aunt at Lululemon®, and now has spawned secondary bubbles in hardware and infrastructure.
I’ve touched on this in previous posts, noting how projected AI:growth outpaces any reasonably available power supplies, present and near future, revenue projections fall short of the grandiose promises, and the full realization of AI’s (theoretical) potential could unleash economic distortions on a scale we’ve rarely seen in human history.
But bubbles don’t exist in isolation. Bubbles multiply, feeding off each other until the inevitable pop unwinds it all. When the Great Housing Bubble burst, for example, sales of sulfuric acid went to zero for months. How are they related? Turns out the Great Housing Bubble was fed off the same credit structure that paid for basic chemicals. And for all this time I thought it was because sulfuric acid was just like anything Chuck Schumer says: baseless and corrosive. Today, we’re seeing this play out in real time, with AI-driven demand ripping into consumer electronics and beyond, all while broader market indicators flash warning signs of decline.
The AI stock bubble has birthed an investment bubble in virtually all computer hardware. Demand for specialized components has skyrocketed, pulling supply away from consumer markets and inflating prices across the board.RAM prices surged 172% year-over-year, with some guessing they’ll double in 2026, SSD prices per TB are climbing with AI and cloud providers tightening supply chains. Motherboards shortages are emerging as manufacturers prioritize AI server builds over consumer PCs, with one producer having sold out for 2026 already. This shift isn’t just raising costs for gamers and everyday users; it’s distorting global supply chains, creating a feedback loop where AI hype justifies more investment, which in turn inflates hardware bubbles.
What happens when the tide rolls out? With the underlying economy already showing recessionary cracks, the fallout will almost certainly be severe. Let’s start with the AI bubble itself: valuations in the sector have soared, with companies like Nvidia™ and others commanding trillions in market cap based largely on future promises rather than current realities. The S&P 500’s concentration in a handful of AI-related stocks reached 30% by late 2025, the highest in decades. Nvidia© (for example) doubled in price from April. Doubled.
Skepticism is now mounting. All this is unfolding against a backdrop of broader economic weakness that A.I. papered over. Oil prices are declining despite ongoing disruptions from wars in Ukraine and tensions with Iran. Price levels are back into COVID 2021 levels. This drop persists amid supply risks: Ukrainian drone strikes on Russian refineries and U.S. sanctions on Venezuelan tankers should theoretically support prices, yet oversupply fears dominate.
If peace breaks out in Ukraine, bringing Russian oil fully back online, prices could plummet 30%-50% as sanctions lift and exports surge. Add in a resolution with Iran, and the glut could be historic - you might as well use oil for bubble baths. The IEA already forecasts surpluses building into 2026. This is a signal of weakening industrial activity worldwide, not resilience.
Domestic indicators paint a similar picture. Unemployment among native-born Americans ticked up to 4.7% in July 2025 from 4.5% a year prior, with the overall rate holding at 4.6% in November. Wages? They’re stagnant at best. The K-shaped economy persists: high-wage earners see modest gains, but lower-income workers face stagnation, widening inequality.
So, what portends when the A.I. Bubble bursts? History offers grim lessons: the Dotcom crash wiped out trillions and triggered a recession and the economic response to that caused he Great Recession. An A.I. pop could be worse, given its entanglement with hardware and infrastructure. It doesn’t help that it is spawned, in part, by the loose-money policies of the post-COVID world. If I’m making an SAT question, Dotcom is to The Great Recession as COVID is to ___________.The A.I. Bubble
• A giant PEZ® dispenser filled with plutonium pellets.
• Greta Thunberg.
• The Black Studies Department at Harvard®.
Consequences of it popping?Investment in data centers and chips dry up, leading to layoffs of all those H-1Bs in San Fran and cratering the tech manufacturing here and in many nations around the world. Deflation hits: hardware prices would crash as overcapacity floods the market, but not before bankrupting suppliers who bet big on eternal demand. Dogs and cats, living together.
With the economy already teetering: slow job growth, wage pressures, and oil signaling demand weakness, the rest are downstream consequences. Consumer spending, which has propped up GDP, falters as confidence erodes and debt defaults rise. Income inequality worsens because banks and Wall Street firms cannot be allowed to fail.
If this capital misallocation is as bad as some of the graphs I’ve seen, this will be the singular economic event of the lifetime of anyone alive. There is a reason that I picked 2032 as the central pivot point of when Civil War 2.0 would show up and it was the underlying financial mismanagement of the United States. A.I.? It’s not the gasoline in the room, it’s the spark. It would have been something.
In the end, bubbles always burst because they’re built out of illusions and fed by poor allocations of capital. The A.I. frenzy has masked underlying frailties that would have led to a very major recession during Biden’s term, but the bubble continued to get bigger. As oil slides, jobs stall, and hardware hype peaks, the reckoning looms. And that science-fair volcano? I hope I don’t drop it on my foot. I’ll Krakatoa.
The usual. Not investment advice, do your own research, etc., etc.. I’m not a priest or an exorcist though I played one on TV. If you read this and make meaningful decisions based on it you need to take a step back and reconsider your life."
No comments:
Post a Comment