The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage.
The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors. Some of the “AI startups” will be sold in fire sales for parts so investors can at least minimize losses and most of the rest will vaporize, the likes of which we haven’t seen since financial firms imploded in 2008.
I hope I’m wrong, but the most experienced trusted folks I know are already repositioning themselves to weather the upcoming storm.
I kind of hope you're right. Any "hyped" industry/sector is bound to eventually needing to get back to reality, and focus on things that actually work, rather than spraying and praying prototypes and over-hyping them.
The individuals and companies building real products that actually improve something will stick around, either as they are, or at least as ideas, and most of the interesting stuff tends to happen when the hype dies down, as the builders continue as they were, but all the rest of the riffraff disappears.
There will still be a community and the ideas won't magically disappear, just smaller and more focused, which to me sounds like a much needed improvement over the current state of things.
I couldn't care less if big tech gets knocked down a peg, but in many quarters the AI boom is what's keeping the lights on. A market correction of that magnitude would mean a lot of pain for a lot of normal people, it's not exactly something I'm cheering on...
Well we’re gonna get, and need, a big correction. I just hope it’s a “big correction” and not a financial implosion that sets the startup ecosystem back a generation.
That return to reality has happened many times in the past. It has happened several times before with AI! In every case with the worthless stuff the bubble was propping up we also lost a lot of useful things too and it generally took a decade for the people who had those useful things that the bubble could help with to realize they shouldn't have stopped investing with everyone else when the fad changed.
Hard disagree. The correction you envisage to something smaller and more focused won't happen because this is also a race between nation states. The bubble is in the startups, and you're right to suggest many are doomed. But the AI giants have strategic national importance now, and won't be denied funding and resources while their foreign rivals continue to grow.
I think it would be better to have a bust now when the actual sums that have already been spend are relatively modest (~100bn?) rather than the $1tn over the next couple of years people are talking about.
The only upside here is if a few notables end up penny-less and dressed in orange. The mockery of solvent business practices, greed and theft is insane in this bubble. From copyrighted material to accounting fraud, I'm sure the fallout motion pictures will be entertaining some day.
What about the rest of the economy? Deutsche Bank recently said that the AI hype is the only thing holding the US stock market together. And if that crashes, it tends to ripple world wide.
Scary stuff, at least to someone who doesn't know all that much about market resilience. With what little I know, I'm hoping for a soft pop with slow deflation. But big tech seems to just pump harder right now.
Any big bust will have broader market implications, but I don’t think this has the broad systemic impact that the financial crisis did. It will likely be really ugly for those caught up in it, but a news story and minor blip to the 401k of everyone else. If you are well diversified keep your head down and keep going. If you’re a VC that heavily invested in AI, I suggest preparing for a Cat 5 hurricane now.
The biggest impact the average person will see is that the days of VC funded cheap AI will be over. If they want to use AI to cheat on their essay they’ll need to pay a lot more.
Most of the world already seems drifting towards far-right authoritarianism based on "just" run-of-the-mill cost-of-living increases and resentment towards economic elites (and a lot of that is lingering, never-healed fallout from the 2008 crisis). I dread to see what the reaction will be to a genuine global crash right now.
It’s pretty scary. According to Barron’s, MicroStrategy, a bitcoin treasury company, alone makes up about 5% of the U.S. convertible bond market. That’s remarkable given that it isn’t a typical tech or biotech growth company issuing convertibles, but essentially a Bitcoin treasury company.
> The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors
I don’t think this is likely. We’ve seen VCs overextend into social networks, “sharing economy”, B2BSAAS, machine learning, developer tools, video games and crypto, in the last 15 years, and they have very little to show for it. Something new will come along and they’ll invest in that.
VCs typically invest money invested in them, so if that dries up, regardless of what dream they want to chase, they can't. The hypes you list all happened, but I don't think I've seen anything in the last 20 years that even comes close to the current AI hype.
I think the debt is what makes the risk systemic. Sure it can be overvalued, but alone that won't cause a generationally painful economic meltdown. It's the spending and debt that make something that is a bubble into something truly dangerous. All the exotic private credit and structured finance that is powering this thing along with the lack of any viable revenue stream to keep up with the debt plus interest that make this thing so dangerous. Sure maybe Meta can take a huge hit and limp away (it's still gonna be very painful for them and people who own a lot of its stock) but can OpenAI, can CoreWeave or any of the firms that lent to them? It's a domino effect. The fact that Meta is doing this is a huge red flag. The problem is the market is rewarding this endless cash burn without any way to generate the appropriate revenue. Once reality catches up there are a ton of knock on effects.
The same way they always do every single year: they re balance their portfolio so they are never heavily invested in any one thing.
If you believe in AI and want to bet strongly in it - which some experienced folks do - you take 5% of your portfolio and bet that in AI. The other 95% is invested in a diversified portfolio.
There are many inexperienced investors. Anyone can ride a bubble up and make a lot of money. There is no reason to think you can call the top of a bubble (or if there is a bubble!) consistently enough to bet on it.
> The startups ecosystem will suffer extensive and catastrophic damage.
These a feature, not a bug of how the startup ecosystem works.
> The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors.
Once again, a feature. There's too many VCs and too many funds.
> the likes of which we haven’t seen since financial firms imploded in 2008.
Institutional financials firms dwarf VC private capital. This alarmist comment makes it sound like a nuke going off in a Nevada desert is going to kill a major US city.
META free cashflow last year : $20bn. Cash on Hand: $47bn. "Worrying" Debt: $15bn sought.
ORCL, the other company they're talking about: $20bn in Cash from Operations, $21bn in capital expenditures, ORCL Cash on Hand: $11bn. ORCL's recent debt flotation: $18bn.
ORCL has 40 years to pay back; demand was reportedly $88bn for the offering. I imagine pricing was close to T-bills.
These flotations posit that demand for compute will continue to increase over the next 40 years, and that infra providers who can get there early will do better than Treasuries.
Calling it a bubble just because the numbers are big is the weakest of financial journalism. Now, do you think inference and datacenter demand will drop? If so, it's worth asking if and when these datacenter will pay, and if they don't, who will take the hit. That would be useful analysis.
I'm pro these plays -- right now inference has an 80% margin; that's after paying the fully capitalized costs of datacenters + compute + the datacenter margin. To the extent a company controls its own inference stack and can do so with a 5% cost of capital, they should do it.
> Calling it a bubble just because the numbers are big is the weakest of financial journalism
Yeah, exactly. The current AI investment wave could be a bubble. Or not. If anyone knows, there are millions to be made in the stock market. The answer depends on the actual expectations for those investments and how actual business metrics are tracking them.
But pointing to ambiguous “evidence” just adds noise. If someone screams fire in a movie theater journalist should report if there’s a fire or at least smoke, not write articles showing concern about how flammable all the furniture is
The thing is, the models do work. They add value to me each and every day, to a degree almost no other tech has done before.
But that doesn't take away the fact that this is extremely expensive stuff (not for me, but for the companies pushing the envelope), far too expensive. And it is really taking its toll on other resources, like electricity.
I think the thing that most of the folks miss is exactly that. AI is adding value and it’s here to stay. Absolutely the OpenAI story is looking concerning but I am not sure it is this doomsday AI winter.
Both can be true at the same time. Similar to the early days of the Internet, the dot-com bubble eventually popped, but the Internet (and dot-coms, for that matter) didn't go away.
What people are saying is that this mad race to throw cash at anything that has "AI" in it will eventually stop, and what will remain are the useful things.
If revenue doesn't catch up with the cost of developing and running these huge LLMs then the only way to avoid an AI winter is to find a way to make them way cheaper to develop.
But are you paying for them commensurate with the value they create? That's the problem. Tons of money being invested/borrowed on technology with not nearly enough revenue to justify it. Same thing that happened in the late 1990s.
Actually the problem is the same as all previous technology: is the company getting 100% benefit while employees get less than zero with lost jobs, lost negotiating power, lost unique skill marketability, etc
No question that neural networks can add value, as has been true for a long time. The question is, how much? The current expenditures indicate that the answer is, "trillions of dollars worth".
If you call it "neural networks" or "large language models" or "machine learning", this would sound absurd. Only by calling it "AI" (with the implication that it will achieve general intelligence) does this sound, for most people, possibly correct.
It's just gotten so out of hand that there are multiple levels of pain. There's all the debt financing / private credit deals on infrastructure costs that will be defaulted on. There are the losses that most people will feel when the overvalued shares drop. There is the pain of tech companies having spent so many resources with very little in terms of viable revenue streams. It's gonna hit a lot of places in the economy.
>Meta seeks $29 billion via private capital for its AI data center buildout.
This would be worrisome if they didn't have the cash to pay for it, but that's peanuts to Meta. It seems more like tax avoidance schemes than anything else.
> "SPVs mean companies like Meta do not need to show the debt as their debt," Perkins writes in a note. He likens today's financing tactics to the subprime era when firms shifted risk off the books to reassure investors.
But it's not? If the SPV is doing its job as a limited liability entity, Meta should be bankruptcy remote from the SPV. Presumably accounting rules would look through that SPV if Meta was actually reachable. It doesn't make a good comparison to GFC where everyone was nominally on the hook but had that risk "insured" with CDSs, etc.
Isn't the problem the creditors exposed to the SPVs though?
Meta, and others might be shielded from it but there's someone on the other end of these debts, if the SPVs are accruing massive amounts of debt and go bankrupt there are lots of obligations that will go unfulfilled, bringing the whole house down.
It's quacking very similar to other accounting tricks, caham, financial engineering, to hide bad numbers somewhere else. CDSs and CDOs were a different mechanism with the same purpose: hide risk away into overly complex instruments.
Perkins’ point is valid. It’s still shareholder assets and resources at the end of the day even if via a SPV. The banks did this sort of thing in the financial crisis with all sorts of subsidiaries and circular funding.
“Hey it’s OK that mortgage side business is going belly up but we bought that special insurance.”
“Cool, so who sells that insurance?”
“Um, actually I think we do via our other SPV”
“$&@!”
Not 100% analogy here but similar shenanigans where company A is taking out debt, to build a datacenter, to buy GPUs, to sell services to startup B that Company A gave cash to to buy said services. Startup B has no viable business model and implodes. Company A goes from looking like a genius to a financial nuclear waste dump almost overnight. It’s financial shell games all over again.
That itself is not proof that AI is not here to stay. It’s a short minded world view. Value is absolutely being generated but of course not everywhere and I am certainly not defending valuations.
Readit News
The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors. Some of the “AI startups” will be sold in fire sales for parts so investors can at least minimize losses and most of the rest will vaporize, the likes of which we haven’t seen since financial firms imploded in 2008.
I hope I’m wrong, but the most experienced trusted folks I know are already repositioning themselves to weather the upcoming storm.
I kind of hope you're right. Any "hyped" industry/sector is bound to eventually needing to get back to reality, and focus on things that actually work, rather than spraying and praying prototypes and over-hyping them.
The individuals and companies building real products that actually improve something will stick around, either as they are, or at least as ideas, and most of the interesting stuff tends to happen when the hype dies down, as the builders continue as they were, but all the rest of the riffraff disappears.
There will still be a community and the ideas won't magically disappear, just smaller and more focused, which to me sounds like a much needed improvement over the current state of things.
I couldn't care less if big tech gets knocked down a peg, but in many quarters the AI boom is what's keeping the lights on. A market correction of that magnitude would mean a lot of pain for a lot of normal people, it's not exactly something I'm cheering on...
https://www.palladiummag.com/2025/10/03/how-gdp-hides-indust...
Scary stuff, at least to someone who doesn't know all that much about market resilience. With what little I know, I'm hoping for a soft pop with slow deflation. But big tech seems to just pump harder right now.
The biggest impact the average person will see is that the days of VC funded cheap AI will be over. If they want to use AI to cheat on their essay they’ll need to pay a lot more.
Deleted Comment
Doesn't sound right. Russel 2000 is up ~10% YTD.
I don’t think this is likely. We’ve seen VCs overextend into social networks, “sharing economy”, B2BSAAS, machine learning, developer tools, video games and crypto, in the last 15 years, and they have very little to show for it. Something new will come along and they’ll invest in that.
I think because we hear about AI so much, we tend to exaggerate its importance?
Repositioning in what way?
If you believe in AI and want to bet strongly in it - which some experienced folks do - you take 5% of your portfolio and bet that in AI. The other 95% is invested in a diversified portfolio.
There are many inexperienced investors. Anyone can ride a bubble up and make a lot of money. There is no reason to think you can call the top of a bubble (or if there is a bubble!) consistently enough to bet on it.
https://www.whitehouse.gov/presidential-actions/2025/03/esta...
I don’t even mean that as cynical— the model is designed to spread risk and let winners emerge, both in company leaders and technology.
That necessarily means periodic culling.
These a feature, not a bug of how the startup ecosystem works.
> The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors.
Once again, a feature. There's too many VCs and too many funds.
> the likes of which we haven’t seen since financial firms imploded in 2008.
Institutional financials firms dwarf VC private capital. This alarmist comment makes it sound like a nuke going off in a Nevada desert is going to kill a major US city.
Sometimes literally.
Every time a tech bubble pops, it's an opportunity to upgrade your work-from-home furniture cheap.
I've gotten some nice chairs and even have a nice coffee table that used to grace an office lobby in the old WaMu tower in Seattle.
I guess that makes me a home furnishings vulture.
Hard to see this as a bad thing.
ORCL, the other company they're talking about: $20bn in Cash from Operations, $21bn in capital expenditures, ORCL Cash on Hand: $11bn. ORCL's recent debt flotation: $18bn.
ORCL has 40 years to pay back; demand was reportedly $88bn for the offering. I imagine pricing was close to T-bills.
These flotations posit that demand for compute will continue to increase over the next 40 years, and that infra providers who can get there early will do better than Treasuries.
Calling it a bubble just because the numbers are big is the weakest of financial journalism. Now, do you think inference and datacenter demand will drop? If so, it's worth asking if and when these datacenter will pay, and if they don't, who will take the hit. That would be useful analysis.
I'm pro these plays -- right now inference has an 80% margin; that's after paying the fully capitalized costs of datacenters + compute + the datacenter margin. To the extent a company controls its own inference stack and can do so with a 5% cost of capital, they should do it.
Yeah, exactly. The current AI investment wave could be a bubble. Or not. If anyone knows, there are millions to be made in the stock market. The answer depends on the actual expectations for those investments and how actual business metrics are tracking them.
But pointing to ambiguous “evidence” just adds noise. If someone screams fire in a movie theater journalist should report if there’s a fire or at least smoke, not write articles showing concern about how flammable all the furniture is
I'm curious about this. Source?
But that doesn't take away the fact that this is extremely expensive stuff (not for me, but for the companies pushing the envelope), far too expensive. And it is really taking its toll on other resources, like electricity.
What people are saying is that this mad race to throw cash at anything that has "AI" in it will eventually stop, and what will remain are the useful things.
If you call it "neural networks" or "large language models" or "machine learning", this would sound absurd. Only by calling it "AI" (with the implication that it will achieve general intelligence) does this sound, for most people, possibly correct.
I think that the Economist posted some months ago a study that indicated that without datacenter capex booming the US economy would otherwise be flat.
At some point there will be major shakeups.
This would be worrisome if they didn't have the cash to pay for it, but that's peanuts to Meta. It seems more like tax avoidance schemes than anything else.
But it's not? If the SPV is doing its job as a limited liability entity, Meta should be bankruptcy remote from the SPV. Presumably accounting rules would look through that SPV if Meta was actually reachable. It doesn't make a good comparison to GFC where everyone was nominally on the hook but had that risk "insured" with CDSs, etc.
Meta, and others might be shielded from it but there's someone on the other end of these debts, if the SPVs are accruing massive amounts of debt and go bankrupt there are lots of obligations that will go unfulfilled, bringing the whole house down.
It's quacking very similar to other accounting tricks, caham, financial engineering, to hide bad numbers somewhere else. CDSs and CDOs were a different mechanism with the same purpose: hide risk away into overly complex instruments.
“Hey it’s OK that mortgage side business is going belly up but we bought that special insurance.”
“Cool, so who sells that insurance?”
“Um, actually I think we do via our other SPV”
“$&@!”
Not 100% analogy here but similar shenanigans where company A is taking out debt, to build a datacenter, to buy GPUs, to sell services to startup B that Company A gave cash to to buy said services. Startup B has no viable business model and implodes. Company A goes from looking like a genius to a financial nuclear waste dump almost overnight. It’s financial shell games all over again.
Will all of the current companies exist 5 years from now? Probably not.
Is AI generating value and here to stay. Absolutely.