How would an AI bubble effect most people?

[MRG]

This time will be different....

Gartner has a chart about technology adoption. We've not seen "the trough of disillusionment", yet.

I worked for a guy who had words about the pioneers being face down in the prairie. I remember the pioneers that developed a driver license renewal system that pretty much killed 4GLs for large scale development.

 

[pb4uski]

My concern with index funds is that they are so prolific in 401ks, IRAs and other retirement savings plans that you end up with too much money being invested totally indiscriminately. If a stock is a lousy stock but is 1% of the index then generally 1% of all retirement fund contributions via index funds is creating demand for that lousy stock.

 

[surprising]

My concern with index funds is that they are so prolific in 401ks, IRAs and other retirement savings plans that you end up with too much money being invested totally indiscriminately. If a stock is a lousy stock but is 1% of the index then generally 1% of all retirement fund contributions via index funds is creating demand for that lousy stock.

Did we just witness the bubble popping? NVDA released great earnings, which was supposed to calm down the bubble fears, but there was a massive reversal today. There's nothing left to pin hopes on.

 

[yakers]

I heard an interesting blog about the coming AI bubble burst that this time will be pretty bad financially and there will not be the 'residual' infrastructure to build on afterward. When there were overbuilding of railroads (esp in the UK), canals and the whole tech bust there was an infrastructure left in place that was lated built on. But with the tech production for AI we will have faster chips but they will be superceded quckly enough that the money pouring into them and electricity generation will not have a 'residual' return. So effectively a bigger financial loss than previous busts maybe more like the Tulip craze or South Seas bubble. We'll survive but those deep into it will lose significantly.

 

[GravitySucks]

You can ask AI to list the most likely scenarios. That would be insightful and ironic!

I think the bubble prick will expose more than fake AI-labeled companies. But that story goes very dark.

I purchased hearing aids this year. They tried to upgrade me to AI powered hearing aids. I highly doubt the aids in question were truly AI powered.

 

[engineernerd]

I think the effect of the AI bubble bursting will probably be similar to the effect of the financial crisis of 2008. The government will ride to the rescue for the big-money guys and increase wealth concentration at the very top some more.

The cliffhanger for me is whether the world will then run for the exits on U.S. government debt, which IMHO will have a much more catastrophic effect on the U.S. economy (via very high inflation and all the counterproductive behavior that goes with it).

 

[mrfeh]

I think the effect of the AI bubble bursting will probably be similar to the effect of the financial crisis of 2008.

I really don't see any similarities between the two. The GFC was about fraud, mortgages/bonds and collapse of the banking system from bad debt.

If there is a bubble now, it's all about overbought equities.

 

[audreyh1]

Companies are going to love AI CSR's. Even cheaper than a call center in India and even better at wasting your time without solving the problem

Already get this with the chat room bots, but at least they escalate after trying to answer a few things.

 

[engineernerd]

I really don't see any similarities between the two. The GFC was about fraud, mortgages/bonds and collapse of the banking system from bad debt.

If there is a bubble now, it's all about overbought equities.

It's about poorly-regulated lending to entities that aren't looking likely to generate enough income to repay the loans, some unknown amount of which IS coming from the banks by an indirect route that sounds like it should be illegal but somehow is happening anyway. According to what I'm reading, anyway.

 

[marko]

I'm not asking about AI's effect on society. I'm asking about the economic effects of an AI bubble burst on society.

Bubble bursts come and go, starting perhaps with the tulip crash of 1637.

I'm trying to remember anything notable about the dot com bubble burst that had a severe impact on society itself. A nice buying or TLH opportunity at some point, IMO.

 

[mrfeh]

Bubble bursts come and go, starting perhaps with the tulip crash of 1637.

I'm trying to remember anything notable about the dot com bubble burst that had a severe impact on society itself. A nice buying or TLH opportunity at some point, IMO.

Right, although the average person walking down the street has very little money invested in equities.

 

[marko]

Right, although the average person walking down the street has very little money invested in equities.

Exactly. Investors might get creamed, savy investors will scoop up bargains and the average Joe heads out to Olive Garden for dinner, oblivious to it all, asking for more breadsticks. Life goes on.

 

[GrayHare]

Did we just witness the bubble popping? NVDA released great earnings, which was supposed to calm down the bubble fears, but there was a massive reversal today. There's nothing left to pin hopes on.

Today's action suggests we're going to get some consolidation. Hopefully it will be gentle and support the next run up. Glad I did not delay trimming my NVDA, MSFT and META holdings last month when I wanted some cash.

 

[FlaGator]

I wonder about the knock-on effects - Data centers built on spec, electricity costs in the meantime, etc. There has already been plenty of speculative solar and other "green" installations with mandated interconnection to the existing grid. My contacts in the generation business tell me this has imposed substantial costs for utilities that will are/will eventually show up in rate increases. The conversion of quality farmland to solar farms is personally troubling, but that's a separate issue from AI investment.

If there is an AI bubble, the consequences could be more widespread than the dotcom bubble which was unpleasant enough. One good thing from that was a lot of fiber was laid that is now being used. Could well be a silver lining in the form of low-cost future capacity from this as well.

That said, the only thing I *may* do is trim my allocation back a few points, lock up some recent S&P 500 gains to be deployed later. Or just let it ride, haven't decided.

 

[marko]

If the current AI driven market downturn continues to year-end, it should reduce my '26 RMD by about $4k from what I had been expecting.

So I've got that going for me! Might even have some room for a little TLH.

 

[Aerides]

I purchased hearing aids this year. They tried to upgrade me to AI powered hearing aids. I highly doubt the aids in question were truly AI powered.

My thought is that "AI" is the new "algorithm" - remember that was the buzzword in everything about 10 years ago?

If there's code in it, it's called AI in marketing.

 

[audreyh1]

I wonder about the knock-on effects - Data centers built on spec, electricity costs in the meantime, etc. There has already been plenty of speculative solar and other "green" installations with mandated interconnection to the existing grid. My contacts in the generation business tell me this has imposed substantial costs for utilities that will are/will eventually show up in rate increases. The conversion of quality farmland to solar farms is personally troubling, but that's a separate issue from AI investment.

If there is an AI bubble, the consequences could be more widespread than the dotcom bubble which was unpleasant enough. One good thing from that was a lot of fiber was laid that is now being used. Could well be a silver lining in the form of low-cost future capacity from this as well.

That said, the only thing I *may* do is trim my allocation back a few points, lock up some recent S&P 500 gains to be deployed later. Or just let it ride, haven't decided.

The build up of data centers with huge power demands is of concern to me. And that amount of power will probably ultimately not be needed. So it maybe that ends up having the side benefit of larger future capacity bringing prices back down.

 

[ncbill]

I wonder about the knock-on effects - Data centers built on spec, electricity costs in the meantime, etc. There has already been plenty of speculative solar and other "green" installations with mandated interconnection to the existing grid. My contacts in the generation business tell me this has imposed substantial costs for utilities that will are/will eventually show up in rate increases. The conversion of quality farmland to solar farms is personally troubling, but that's a separate issue from AI investment.

If there is an AI bubble, the consequences could be more widespread than the dotcom bubble which was unpleasant enough. One good thing from that was a lot of fiber was laid that is now being used. Could well be a silver lining in the form of low-cost future capacity from this as well.

That said, the only thing I *may* do is trim my allocation back a few points, lock up some recent S&P 500 gains to be deployed later. Or just let it ride, haven't decided.

just wait until they start building new nuclear plants, known for breathtaking cost overruns...

 

[Fermion]

AI is getting really bad now with defending incorrect answers. There will be a upside down bridge built soon.

 

[momoney]

The build up of data centers with huge power demands is of concern to me. And that amount of power will probably ultimately not be needed. So it maybe that ends up having the side benefit of larger future capacity bringing prices back down.

Reminds me of back when they built out all of the fiber. Some areas had high demand and lit up fast and others not so much.

 

[Steelpony]

I'm seeing more and more predictions of an AI bubble and comparing it to the 90's dot-com bubble. Back then (and still today) I was invested in broad market index funds - mostly a simple S&P 500 fund. I didn't have much money in the NASDAQ. Today I still don't buy individual stocks. I'm in broad market index funds like the S&P 500, Vanguard Total Market, and Total International Market funds. I know these large companies are investing in AI, but my memory of the dot-com collapse is that it mostly just eliminated companies with no real product or earnings that were cashing in on the word "internet". Would an AI bubble bursting be similar in that it would mostly effect companies using the word "AI" without earnings or a marketable product?

Other than people directly targeting AI companies for their investments similar to what some people did with the NASDAQ in the 90's, how will a tech bubble effect most people? I'm trying to get a feel for how worried most people should really be. Will significantly effect the S&P 500? Will there be job losses in companies that aren't heavily investing in AI?

Well the way to get some protection in these events as in the gold rush, tech bust and maybe this if it’s a bubble is to stick with suppliers not companies with great AI use ideas.

Picks, shovels, AAPL, MSFT, INTC and NVDA this time but I’m no longer up on current tech.

The greediest get burned, the scared were never in, we invested in the picks and shovels of tech in the 90’s, WINTEL and AAPL See what happens with bubble rumors now? So try 20-30% plunges eventually once investors are convinced it’s true “irrational exuberance“. Then on to the next “big thing”. AI is here to stay for the rest of my lifetime.

 

[PristineSound]

As J Powell said: the difference with AI is that these companies actually have earnings.

Let see what happens, I am staying the course with my portfolio. I have time to recover.

I suspect there will be some of the smaller start ups popping. The big guys like Microsoft, Google, Amazon and Meta, all have a diverse business and their data centers can convert to cloud computing which continues to grow and demand more demand for capacity.

 

[audreyh1]

Reminds me of back when they built out all of the fiber. Some areas had high demand and lit up fast and others not so much.

In the meantime we took forever to get it.

 

[aja8888]

As J Powell said: the difference with AI is that these companies actually have earnings.

Let see what happens, I am staying the course with my portfolio. I have time to recover.

I suspect there will be some of the smaller start ups popping. The big guys like Microsoft, Google, Amazon and Meta, all have a diverse business and their data centers can convert to cloud computing which continues to grow and demand more demand for capacity.

And sooner or later there will be too much capacity in the data centers. This is the same playbook the chemical industry goes through every time their is a big demand for a new product. At one time there were so many new polyolifins plants built that almost no operator had enough work to run a continuous operation.

And boy, did it get price competitive. The same thing happened with copper water tube production in the 1970 - 1985 period.

 

[GrayHare]

If AI hype has peaked, it must be time for Meta to belatedly rename itself again. Maita, anyone?