Key Takeaways:
- The race to artificial general intelligence (AGI) has led to a massive investment of trillions of dollars in datacentres, AI research, and development.
- The success of AGI is expected to bring about a new era of financial plenty, but failure could lead to a 2008-style bust.
- Experts warn that the current investment in AI may be unrealistic and that the technology may not deliver on its promises.
- The debt markets, stock markets, and pension funds are all at risk if the AI bubble bursts.
- The consequences of not achieving AGI could be significant, including a sharp correction in US and UK markets, and a potential crash in the debt markets.
Introduction to the AI Investment Boom
The investment in artificial general intelligence (AGI) has reached staggering levels, with an estimated $2.9tn being spent on datacentres, the central nervous systems of AI tools. The stock market capitalization of Nvidia, the company that makes the chips powering cutting-edge AI systems, has reached over $4tn. Additionally, top engineers at OpenAI, the company behind ChatGPT, are being offered $100m signing-on bonuses by Mark Zuckerberg’s Meta. These sky-high numbers are all propped up by investors who expect a return on their trillions. As David Cahn, a partner at Sequoia Capital, says, "Nothing short of AGI will be enough to justify the investments now being proposed for the coming decade."
The Risk of an AI Bubble Burst
However, there is a risk that the investment in AI may not deliver on its promises. Yoshua Bengio, one of the "godfathers" of modern AI, warns that "there is a clear possibility that we will hit a wall, that there’s some difficulty that we don’t foresee right now, and we don’t find any solution quickly." This could lead to a "real [financial] crash" and have significant consequences for investors. David Bader, the director of the institute for data science at the New Jersey Institute of Technology, agrees, saying that "if AGI requires a fundamentally different approach, perhaps something we haven’t yet conceived, then we’re optimising an architecture that can’t get us there no matter how large we make it."
The Debt Markets and the AI Boom
The debt markets are also playing a significant role in the AI boom, with an estimated $2.9tn being spent on datacentres between now and 2028. Half of this will be covered by the cash flow from "hyperscalers" such as Alphabet and Microsoft, while the rest will have to be covered by alternative sources such as private credit. This has raised concerns among analysts, with Morgan Stanley warning that the debt markets could be at risk if the AI bubble bursts. As Bader says, "if AGI doesn’t materialise on expected timelines, we could see contagion across multiple debt markets simultaneously – investment-grade bonds, high-yield junk debt, private credit and securitised products – all of which are being tapped to fund this buildout."
The Stock Markets and the AI Boom
The stock markets are also heavily invested in the AI boom, with the so-called "magnificent 7" of US tech stocks – Alphabet, Amazon, Apple, Tesla, Meta, Microsoft, and Nvidia – accounting for more than a third of the value of the S&P 500 index. This has raised concerns among central bankers, with the Bank of England warning of "the risk of a sharp correction" in US and UK markets due to giddy valuations of AI-linked tech companies. Even tech execs whose companies are benefiting from the boom are acknowledging the speculative nature of the frenzy, with Sundar Pichai, the chief executive of Alphabet, saying that there are "elements of irrationality" in the boom.
The Consequences of an AI Bubble Burst
The consequences of an AI bubble burst could be significant, with pension funds and anyone invested in the stock market affected by a share price collapse. The debt markets will also take a hit, with a potential crash in the debt markets. As Pichai admits, "no company is going to be immune" if the bubble bursts. Additionally, there are concerns about the "circular" deals between companies, such as OpenAI paying Nvidia in cash for chips, and Nvidia investing in OpenAI for non-controlling shares. If these transactions unravel due to a lack of take-up of AI, or the wall being hit, then it could be messy.
The Optimistic View
However, there are also optimists who argue that generative AI, the catch-all term for tools such as chatbots and video generators, will transform whole industries and justify the expenditure. Benedict Evans, a technology analyst, says that the expenditure numbers are not outrageous in the context of other industries, such as oil and gas extraction which runs at $600bn a year. Evans adds that "you don’t have to believe in AGI to believe that generative AI is a big thing. And most of what is happening here is not, ‘oh wow they’re going to create God’. It’s ‘this is going to completely change how advertising, search, software and social networks – and everything else our business is based on – is going to work’." Nonetheless, there is a multitrillion dollar expectation that AGI will be achieved, and the consequences of getting there are alarming. The cost of not getting there could also be significant.
https://www.theguardian.com/technology/2026/jan/17/why-trillions-dollars-risk-no-guarantee-ai-reward