Here's How the AI Crash Happens

[Celerity]

7. The improvements made by each new AI model are becoming smaller and smaller, making the idea that Silicon Valley can

spend its way to superintelligence more tenuous by the day.

The people who are paying attention to this cycle are getting anxious. On a scale from one to 10, the AI-bubble concern is: people posting memes of Christian Bale’s character from The Big Short, squinting in disbelief at his computer monitor. If tech stocks fall because of AI companies failing to deliver on their promises, the highly leveraged hedge funds that are invested in these companies could be forced into fire sales. This could create a vicious cycle, causing the financial damage to spread to pension funds, mutual funds, insurance companies, and everyday investors. As capital flees the market, non-tech stocks will also plummet: bad news for anyone who thought to play it safe and invest in, for instance, real estate. If the damage were to knock down private-equity firms (which are invested in these data centers) themselves—which manage trillions and trillions of dollars in assets and constitute what is basically a global shadow-banking system—that could produce another major crash.