Bubble Trouble: An AI bubble threatens Silicon Valley, and all of us.

[Celerity]

https://prospect.org/power/2025-03-25-bubble-trouble-ai-threat/


“Big Tech Incinerates Its Fortune,” in the style of Georgia O’Keeffe

The week of Donald Trump’s inauguration, Sam Altman, the CEO of OpenAI, stood tall next to the president as he made a dramatic announcement: the launch of Project Stargate, a $500 billion supercluster in the rolling plains of Texas that would run OpenAI’s massive artificial-intelligence models. Befitting its name, Stargate would dwarf most megaprojects in human history. Even the $100 billion that Altman promised would be deployed “immediately” would be much more expensive than the Manhattan Project ($30 billion in current dollars) and the COVID vaccine’s Operation Warp Speed ($18 billion), rivaling the multiyear construction of the Interstate Highway System ($114 billion). OpenAI would have all the computing infrastructure it needed to complete its ultimate goal of building humanity’s last invention: artificial general intelligence (AGI).



But the reaction to Stargate was muted as Silicon Valley had turned its attention west. A new generative AI model called DeepSeek R1, released by the Chinese hedge fund High-Flyer, sent a threatening tremor through the balance sheets and investment portfolios of the tech industry. DeepSeek’s latest version, allegedly trained for just $6 million (though this has been contested), matched the performance of OpenAI’s flagship reasoning model o1 at 95 percent lower cost. R1 even learned o1 reasoning techniques, OpenAI’s much-hyped “secret sauce” to allow it to maintain a wide technical lead over other models. Best of all, R1 is open-source down to the model weights, so anyone can download and modify the details of the model themselves for free. It’s an existential threat to OpenAI’s business model, which depends on using its technical lead to sell the most expensive subscriptions in the industry. It also threatens to pop a speculative bubble around generative AI inflated by the Silicon Valley hype machine, with hundreds of billions at stake.

Venture capital (VC) funds, drunk on a decade of “growth at all costs,” have poured about $200 billion into generative AI. Making matters worse, the stock market’s bull run is deeply dependent on the growth of the Big Tech companies fueling the AI bubble. In 2023, 71 percent of the total gains in the S&P 500 were attributable to the “Magnificent Seven”—Apple, Nvidia, Tesla, Alphabet, Meta, Amazon, and Microsoft—all of which are among the biggest spenders on AI. Just four—Microsoft, Alphabet, Amazon, and Meta—combined for $246 billion of capital expenditure in 2024 to support the AI build-out. Goldman Sachs expects Big Tech to spend over $1 trillion on chips and data centers to power AI over the next five years. Yet OpenAI, the current market leader, expects to lose $5 billion this year, and its annual losses to swell to $11 billion by 2026. If the AI bubble bursts, it not only threatens to wipe out VC firms in the Valley but also blow a gaping hole in the public markets and cause an economy-wide meltdown.

OpenAI’s Ever-Increasing Costs

The basic problem facing Silicon Valley today is, ironically, one of growth. There are no more digital frontiers to conquer. The young, pioneering upstarts—Facebook, Google, Amazon—that struck out toward the digital wilderness are now the monopolists, constraining growth with onerous rentier fees they can charge because of their market-making size. The software industry’s spectacular returns from the launch of the internet in the ’90s to the end of the 2010s would never come back, but venture capitalists still chased the chance to invest in the next Facebook or Google. This has led to what AI critic Ed Zitron calls the “rot economy,” in which VCs overhype a series of digital technologies—the blockchain, then cryptocurrencies, then NFTs, and then the metaverse—promising the limitless growth of the early internet companies. According to Zitron, each of these innovations failed to either transform existing industries or become sustainable industries themselves, because the business case at the heart of these technologies was rotten, pushed forward by wasteful, bloated venture investments still selling an endless digital frontier of growth that no longer existed. Enter AGI, the proposed creation of an AI with an intelligence that dwarfs any single person’s and possibly the collective intelligence of humanity. Once AGI is built, we can easily solve many of the toughest challenges facing humanity: climate change, cancer, new net-zero energy sources.

snip


“Big Tech Incinerates Its Fortune,” in the style of Vincent van Gogh


… in the style of Hokusai


… in the style of Jacob Lawrence


… in the style of Roy Lichtenstein

[highplainsdem]

1. Good article, though a bit late, but shame on the nitwit who added all that AI slop as illos. So

tacky and pointless. Apparently someone there is foolish enough to think playing with AI - Midjourney in this case - is cute or amusing. All they've done is add to the AI slop online and make it likely that garbage will show up in search results for each of those artists, further polluting our information ecosystem.

Please don't post AI slop here and add to the mess. Just the text from that article was needed here and relevant to the subject.

Good for Bryan McMahon, who wrote the article (and probably had nothing to do with the ridiculous addition of that AI slop). Especially for quoting Ed Zitron and Gary Marcus, two of my favorite experts on AI. A few threads about Ed's writing this past year:

May 22, 2024 - Sam Altman Is Full Of Shit (Ed Zitron of Business Insider, writing in his own blog about the OpenAI CEO)
https://www.democraticunderground.com/100218970613

June 11, 2024 - Silicon Valley's False Prophet (Ed Zitron uses recent revelations to take OpenAI CEO Sam Altman apart)
https://www.democraticunderground.com/100219026779

Feb. 24, 2025. - Ed Zitron: There Is No AI Revolution (DAMNING analysis of a house of cards built by con men & venture capitalists)
https://www.democraticunderground.com/100220066913

I've posted more than a dozen threads here with Gary Marcus's name in the thread title, so I'm not going to link to all of them. But the first one where Gary predicted the AI bubble bursting was in May 2023:

Financial Times & Gary Marcus on why the generative-AI bubble (ChatGPT, Midjourney etc) might burst
https://www.democraticunderground.com/100218192511

[SheltieLover]

3. Ty for all the info & links!

[Passages]

2. Monopolists is such a sanitzed word for them.

I like the word thief better.

[Oneironaut]

4. The AI bubble is so obvious at this point.

I think a crash needs to happen in order for us to use AI in an efficient way. Building nuclear power plants and huge warehouses just so people can generate goofy images isn’t it.

[JCMach1]

5. AI is just fine. People with more money than common sense...

Always a problem.

The hate for Deepseek is 100% because it is OPEN SOURCE... IE free.

I literally have a local version on my 💻in my office running on OLLAMA. No China, no Google, no Openai needed.

Beauty of local all the data remains secured and mine. Plus i can tune it to meet my needs.