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Remember the dot-com boom of the late 1990s? Every company added com to its name, and investors threw money at it like confetti, only to see it lead to massive market crashes. Before that, in the 1840s, excuse me, there was the railroad mania, a stock bubble in the railroad industry. And even before that, red tulip bulbs were traded on the Amsterdam Stock Exchange at absurdly high prices in the 1630s.
People have an incredible ability to confuse excitement with economics. We are now observing similar science. This time the bubble is about artificial intelligence. You see, stock markets have a habit of creating two things. Billionaires and people who insist that the end is near. Every time prices reach record highs, a chorus of pundits emerges to declare that the bubble is about to burst.
Sometimes they do it so early that the market doubles before it proves them right. Now it's AI's turn. Skeptics are once again arguing that today's euphoria is tomorrow's cautionary tale, and they hope that this year they will finally be able to say, "We warned you." The latest to sound the alarm is American investor Michael Burr.
He was the one who predicted the 2008 housing market crash . The man immortalized in the Hollywood film "The Great Depression." He is once again betting against market optimism, where he reportedly took short positions against companies such as Tesla, Caterpillar, and Applied Materials. This is what a short position means.
Typically, an investor buys a stock at a low price and hopes to sell it at a high price, right? But with a short position, the investor does the opposite. He borrows the company's shares from a broker and immediately sells them at the current market price. Then he hopes the price will fall. He then buys back the shares at a lower price and returns them to the broker.
The difference is profit. In Barry's case, he is betting that these stocks will decline in price. According to him , companies spend astronomical amounts simply because they are afraid of being left behind. This is the corporate version of FOMO, the fear of missing out . Take South Korea, for example .
Samsung and SKH High have announced plans to invest over $520 billion in a semiconductor hub. The markets liked it. The NASDAQ rose higher. Investors applauded . Barry looked at the same news and became even more worried. His question is simple. When do these investments actually yield a profit? Or, perhaps more importantly, do they deliver?
And he is not alone. Economists at the European Central Bank have also begun to sound cautious. They point to rising corporate debt , greater leverage, more borrowing, and more speculative money chasing technology. Before I continue, it's important to know how a bubble actually forms. A new trend or technology emerges.
Investors are happy. Then they invest the money in stocks. Prices are rising rapidly, which attracts more buyers. But eventually expectations become unrealistic. A trigger like disappointing earnings or slower growth forces investors to sell . Then prices fall sharply, and then the bubble bursts. The signs are already there.
Here is one example. SpaceX raised a record $86 billion from investors, then almost immediately went back to borrow another $25 billion. A leading investor at Germany's largest insurance alliance called it a classic symptom of the market entering bubble territory, where easy money is starting to look a little too easy.
SpaceX has become an emblem for the debate about the artificial intelligence bubble. Elon Musk's company has completed a record-breaking IPO , raising tens of billions of dollars at a valuation of $1.75 trillion. This means that investors are willing to pay 90 times the company's revenue. So prices are determined more by expectations than by current financial performance.
And then there are the big tech companies Meta, Microsoft, Amazon, and Alphabet. Together, they are spending hundreds of billions on AI infrastructure, even as investors debate when these investments will yield significant returns. I believe that a bubble is not really a binary thing. The question is whether there are degrees of enthusiasm in this sector, and I would say the answer to that question is unequivocally yes .
And I think that's actually because of how we look at the degrees of uncertainty that are present in many parts of this model. There is a certain level of uncertainty about demand, and evidence of this has only emerged in the last few days. Now, expectations for the technology seem to have outpaced reality.
Some companies rushing to replace workers with artificial intelligence are now reversing course after the technology failed to deliver the expected results. For example, Ford rehired hundreds of experienced, veteran engineers, sorry, after its AI- based quality systems underperformed . Software company IBM and Commonwealth Bank of Australia have taken similar steps.
Here's why this should worry you. Because the collapse of artificial intelligence could spread to the global financial system. This could be even worse, it could be even worse than the explosion of companies. Because today's AI boom is n't just about stock prices. It finances economic growth itself .
This is a much bigger adventure. Back in the late 1990s, the American economy was truly booming. GDP growth regularly exceeded 4%. Public finances were healthy. The United States even had a budget surplus. Let's move on to today. Federal debt exceeds 120% of GDP. Budget deficits have become the norm.
And there is another risk – concentration. The so-called "Magnificent Seven," Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla, have become so dominant that they practically drag the entire American stock market with them. Today, the 10 largest companies make up about 40% of the S&P 500. During the boom, the peak was about 27%.
This could affect markets around the world. This is because American markets are no longer just an American problem. Pension funds in Europe, insurance portfolios in Asia, mutual funds in India – everyone owns America, whether they realize it or not. Does this mean that artificial intelligence itself is a fake?
Absolutely not. This is an incorrect conclusion. Railways changed civilization. The Internet has changed commerce. If the bubble does burst, technology will stay. Investments–no. So is a collapse imminent? Probably. Markets always correct excesses. The only mystery is time. The bubble may still have to exist because there is a president who is willing to end the war he futilely started to keep the financial markets happy.
There is no crystal ball that can predict collapse. No one rang the bell before the collapse. No one announced the financial crisis of 2008 in advance. And no one knows what will burst today's artificial intelligence balloon. The world doesn't fit into a box, so why should your news be like that ? From battlefields to negotiating tables, from online outrage to real-world injustice.
The conversations everyone has and the ones they avoid. It's the same show, but this new year, "First Post America" is getting a new look. I'm Kerry Johnston and this is First Post America.
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