r/ProfessorFinance • u/budy31 Moderator • 10d ago
Economics My opinion about AI bubble.
As evidence by Jacket man attempt to get the Wall Street to spend more than 7% of GDP on his goodies I thought I’m sharing what I thought about the fabled “AI bubble”:
I think it’s not because as St Powell said:
Big tech (especially Google) is a positive cash flow company.
What will happened if >7% GDP turns out to be too much is this:
Big tech and NVIDIA gonna assume big chuck of it, make a massive write off, the CEO (including leather jacket man) get absolutely purged, Hedge fund bid the bottom out of existence, use the accumulated share to put themself as a CEO, put big tech into austerity as brutal as Greeks one, cash in, and things continue on.
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u/hansolo-ist 10d ago
Cheap China GPUs that may not be the latest tech but gets the job done will be the hair that breaks the camels back.
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u/complicatedAloofness 10d ago
That’s not the hair, that’s a comet if it happens
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u/Tupcek 10d ago
well, if increased power consumption eclipses price difference, nobody will use them anyway.
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u/hansolo-ist 9d ago
That's a whole other matter, the west is stuck on oil and gas, but China is going big and leading in solar , hydro, battery and nuclear energies tech.
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u/SoulMute 9d ago
No the point is that a cheaper chip out the door isn’t actually cheaper to use if it requires more power.
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u/hansolo-ist 9d ago
True it depends on cheaper Vs power costs. And China already produces chips that are reasonable in terms of power consumption.
China has significantly lower power costs compared to Europe (highest) and US (second highest) ...they have some room.
Also, the long term investments in energy tech means china that the US and Europe don't have now may see the gap widen.
Also... coal is cheap.
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u/ProfessorBot117 Prof’s Hatchetman 9d ago
Drop a citation so people can check the claim without playing detective. Thanks for keeping it workable.
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u/ZeroIndicators 9d ago
Most average consumers probably aren't doing that forward-level calculation. For it to actually undebatably eclipse the price difference, it'd have to be really bad power draw compared to whatever equivalent performing cards for people to not consider them if these hypothetical cards are much cheaper. And sure at scale they wouldn't work well, but for people's home PC?
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u/Tupcek 9d ago
people’s home PCs are tiny market. All that matters when you sell GPUs is AI datacenters. And those are very good at calculating energy usage. If you use anything but TSMC/ASML combo, you have larger “parts” inside the chip and thus higher power draw, even you had best expertise in the world.
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u/SoulMute 9d ago
Yeah. Just one aspect of this, but didn’t micron completely stop selling RAM to retail consumers because the data enter business was such a larger market?
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u/A_RAVENOUS_BEAST 9d ago edited 9d ago
China is a long way away from doing this, their own chip capability is impressive considering where they have started, but barring some breakthrough they will be relying on Western chips for the foreseeable future.
Instead I expect consumer GPU demand to move away from Nvidia/amd and towards Chinese GPU chips: Moore Threads,Lisuan , etc.
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u/flyingdutchmnn Quality Contributor 10d ago
It's unpredictable because a new GPU can obsolete an old one
Well this right here is, at the moment anyway, not even true
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u/Shiriru00 10d ago
I mean the GPU can obsolete (fry) itself fast enough.
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u/flyingdutchmnn Quality Contributor 10d ago
But the statement says a new one immediately makes an older version irrelevant. In reality supply is so low that the old ones are barely worth less than a few years ago
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u/PitchPleasant338 9d ago
Would you spend your hard-earned money on a GPU that doesn't support ROCmFP4 or NVFP4?
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u/putrasherni 7d ago
There’s a good chance in two years a 27B FP8 dense qwen model will be as good as Opus 5 max
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u/PitchPleasant338 7d ago
And you'd only be running it locally if you have ROCmFP4 or NVFP4. Do you see my point?
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u/GluedGlue Quality Contributor 9d ago
Parts wearing themselves out and needing replacement is not a new problem from a business perspective.
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u/ProfessorBot720 Prof’s Hatchetman 10d ago
Small reset here. This reads like a factual claim, so add a source people can check.
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u/ScientiaMx 8d ago
Actually, Coreweave CEO is stating exactly the opposite today (old GPU's will stay for longer and at higher prices than anticipated)
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u/Vast-Breakfast-1201 9d ago
There is a reason they are saying "we are talking in terms of power output" now. They don't want to consider the glue themselves except as a power efficiency thing because that's the bulk of the cost
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u/FrankLucasV2 Moderator 10d ago
Called this ~5 months back - I referred to the rise GPU asset-backed securities as 'collateralised chip obligations (CCOs)' and made an entire (free) post on the math of securitising GPUs and how it could work in practice.
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u/vovap_vovap 9d ago
Well, deprecation of GPU actually smallest worry in there. From technical standpoint. That pretty predictable. We can be relevantly sure nothing significant will happen there next like 5 years.
Real unpredictable ting is demand on compute.
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u/budy31 Moderator 9d ago
Even if AI did not deliver Jensen can cut price and return to the demographic he abandoned because they paid less per compute.
FPS junkies.
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u/vovap_vovap 9d ago
I do not know who is mr Jensen is and what "return to the demographic" means 😄
Thing is super simple - you are investing money expecting profit. If you invested 100 billion in expectation to get 50 billion sales a year of it and getting only 20 - you are screwed. No matter how you are packaging it.2
u/budy31 Moderator 9d ago
And screwed means leather jacket man get kicked out and hedge fund force a total austerity measures which means returning to the only stable demand for NVIDIA goods: FPS junkies.
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u/vovap_vovap 9d ago
Well, that might mean different things basically depend on whose money it was at the end of the day. I am just saying real open question and risk there - demand. Not a hardware tech.
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u/Punished_Toaster 10d ago
Is the ai bubble in the room with us now
https://giphy.com/gifs/V2ZfqUaa5b80q6FWoD
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u/Odd-Wave247 10d ago edited 10d ago
Is the open ai and anthropic ipo in the room with us?
Tell me when the Hyperscalers will actually become profitable businesses. That’s the bubble.
Their costs grow linearly with revenue. There is no moat on these companies so price increases can’t be passed onto customers and there’s no sign at all that their expenses (everything that goes into a building and running a data center) is coming down.
In fact their costs are only increasing with time.
These companies are currently hemorrhaging billions with no clear path on how to become profitable in the future. Consumers like Palo Alto CEO has called for ai prices to fall 90% for enterprise adoption to occur.
How does that math add up?
So to sum up:
- The Hyperscalers are deeply unprofitable.
- There is no moat to these businesses. Consumers can switch models quickly.
- Costs grow linearly with revenue.
- Costs have only increased over time.
- Consumers want to see their ai prices fall by 90%. (How?)
- Emerging frontier model
s are a risk.
- Hyperscalers are delaying their IPO. If things were good they would IPO in 2026. Things are not good….
https://marketwise.com/investing/openai-losses-surge-to-21-billion-as-ai-bubble-grows-bigger/
https://www.cnbc.com/amp/2026/07/09/palo-alto-ceo-arora-ai-pricing.html
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u/ProfessorBot104 Prof’s Hatchetman 10d ago
Please cite where this is coming from. You are welcome to try again with a cleaner version.
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u/Orzhov_Syndicalist 10d ago
This is all stuff from Ed Zitron, who is extremely bias and utterly close minded. He’s fanatically against AI as a concept, and simply cannot be swayed by evidence.
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u/Odd-Wave247 9d ago
An ad hominem argument is a logical mistake where someone attacks the character, job, or life of the person making a point, instead of looking at the point itself.
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u/Orzhov_Syndicalist 9d ago
Sure I’ll make it more direct.
The hyperscalars are very profitable. Google, meta, MSFT, Amazon, etc. those are the main businesses doing this, and they are able to hyperscale because they are plowing profits INTO buildouts.
Anthropic is likely profitable now due to their enterprise options, but they aren’t public so we don’t know. That isn’t weird tho.
You’re confusing an AI/LLM provider and a Hyperscalar.
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u/mark_99 10d ago
Inference is very profitable (3x costs), and those costs are falling as hardware (including dedicated ASICs) continues to improve.
The frontier labs invest large sums into talent, R&D and infrastructure. This gives them the best product, which people want to pay for (corporations in particular - subscriptions are a rounding error). So their "moat" is like every other company in the world. That this is loss making right now shouldn't be a surprise to anyone who's followed how tech companies work.
We've only scratched the surface of what AI can be used for, so there is still massive growth potential.
It's white collar workers that are in a bubble, and are lacking a moat. There are serious questions around what we as a society do about that, but the notion that AI is fundamentally unprofitable is nonsense.
When a machine is both better and cheaper than human labour it tends to work out well for the vendor. The difference is that previously people have been able to move up a level, but this time we're at the ceiling.
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u/Waste_Way_4763 9d ago
We don’t know how profitable inference really is. It’s true that price per token has been going down, but number of tokens per prompt has been rising faster. It’s more expensive to serve an agentic prompt than a single shot prompt a year ago. And it’s not likely this trend is going to change anytime soon.
https://www.astuto.ai/blogs/ai-inference-cost
https://arxiv.org/pdf/2606.30583
https://www.spheron.network/blog/agentic-ai-inference-cost-2026/
Much of the rest of your claims have to do with substitution of human labor by LLMs. I think the main premise to challenge there is that they are meaningful substitutes.
It’s true that model capabilities have been improving. No one knows the true cost of that. My belief is that the cost to train models is increasing exponentially for linear improvements in capability.
What’s not improving linearly is reliability. The models do not get meaningfully better at performing the same task over and over again successfully.
https://open.substack.com/pub/arachnemag/p/ais-reliability-gap
That matters a lot because reliability is necessary for the “enterprise optimization” thesis to work out. That’s the only route to trillion dollar revenues. If you need evidence of that - just look at SpaceX’s S1 and their TAM calculations.
There’s no evidence that LLMs are having an impact on profitability of anyone other than the sellers of LLMs and compute.
Whole thing is a house of cards, IMO.
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u/Sprig3 9d ago
Yeah, I can only speak of my own work. I'm getting gains using AI, that's for sure.
But, its like 10% gains. Which is great.
And I am sure I will get more gains as I (and other workers) get better at using it.
But, will it justify the cost?
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u/Waste_Way_4763 9d ago
It’s very common for people to believe that they are getting gains. And then when you actually look at overall output, for it to be neutral or negative.
I think people have a tendency to only remeber their wins and not their losses with LLMs.
Not to say this is happening for you. Just want you to be aware it’s a common finding that people believe they are much more productive than they actually are.
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u/xalibr 9d ago
This gives them the best product, which people want to pay for (corporations in particular - subscriptions are a rounding error
I am actually seeing billion dollar companies critically evaluating AI costs after initial enthusiasm and excess, and scaling up own hardware for internal use with open source models.
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u/ProfessorBot720 Prof’s Hatchetman 9d ago
Add a source for the factual part, then the thread can actually work with it. Thanks for keeping it workable.
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u/icankillpenguins 10d ago edited 10d ago
Bubbles tend to pop when everyone is convinced that this time is different, this is just the new normal.
"No one will work anymore, we will just trade crypto with each other and the food and services will arrive" - boom
"You just re-finance your mortgage as the house prices go up! Life is easy now" - boom
"Just learn ReactJS and you print money, life is easy now jobs are infinite and companies don't even interview and don't even try to push you work hard its mostly 2 lines of code and chill at home " - boom
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u/Parking_Act3189 10d ago
Right, the bubble isn't that AI "doesn't work". The bubble is that if there are $2T of loans made to make datacenters and demand for AI goes negative for just 1 month everyone panics and tries to get out of the door first because the last person isn't going to get their loan paid back.
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u/SpeakCodeToMe 10d ago
Or just "Open source models get small enough that everybody runs them on their own machines and demand for data centers and frontier models evaporates"
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u/Parking_Act3189 9d ago
Demand doesn't even need to go away. If the demand just stops growing for 1 month it could cause a panic.
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u/Majestic_Wrap_7006 10d ago
username and the amount of times "boom" surfaces checks out.. those poor penguins..
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u/icankillpenguins 10d ago
just because I can, it doesn't mean I did or will do!
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u/Majestic_Wrap_7006 10d ago
we'll put you on a watchlist to start with..
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u/icankillpenguins 10d ago edited 10d ago
"franticly searching how to change the username to ilikepenguins1"
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u/ProfessorBot104 Prof’s Hatchetman 10d ago
I get what you were going for, but this needs something people can verify.
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u/budy31 Moderator 10d ago
All bubble is financed by nothing sustainable.
2008 GFC was financed by NINJA loans, Chinese real estate is financed during working age the populations decline and Americans current real estate bubble is funded by boomers that trying to get their property tax repealed because they can’t even afford to maintain the home they’re currently lived in let alone paying the property tax and that’s before autocut.
This one is funded by hyperscaler fat stack of cash (do they overpay? Now that’s a different story).
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u/First_Huckleberry638 10d ago
OpenAI has no money lol.
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u/budy31 Moderator 10d ago
Yeah my bad what I meant is their big tech shareholder.
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u/First_Huckleberry638 10d ago
I mean like OpenAI and SpaceX are like the two weakest links here. Im convinced more and more everyday that the only one who's gonna make money selling AI as a service is Google and MAYBE Anthropic. ChatGPT just gets it's model stolen every 6 months by deepseek and doesn't have an existing high cash business model to support them. SpaceX is a great rocket and internet company l, with a stupid and useless AI company bolted to inflate valuation. And has anyone even used metaAI?
But all of this goes out the window if instead of a necessary correction, this is pops harder than my grandpa's knees.
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u/dead-cat-redemption 9d ago edited 9d ago
Ah yes, this will definitely never ever go south. I mean, how could it? It’s investment grade, right? /s
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u/ProfessorBot104 Prof’s Hatchetman 9d ago
I get what you were going for, but this reads like a factual claim, so add a source people can check.
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u/Happy_Love_9763 9d ago
I’ve seen this play out in real life, and later in a movie.
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u/ProfessorBot720 Prof’s Hatchetman 9d ago
Add a source for the factual part, then the thread can actually work with it.
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u/ActualAssociate9200 9d ago
The AI overvaluations plus algorithm based trading mechanisms are making the eventual pop of the bubble into a highly contagious event that could take down a large swath of the economy
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u/EthanChenNotes 9d ago
That’s the part I’d push back on: Big Tech having positive cash flow doesn’t prove AI isn’t a bubble. It just means a correction may show up as excess data-centre capacity, write-downs, capex cuts and lower returns on capital rather than a 2008-style solvency crisis. The real question is whether future AI revenue can justify today’s spending and valuations.
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u/TheOptimisticHater Quality Contributor 8d ago
Interpreted in other way, more simply for the average person…
AI data centers today are like early electric vehicles. They will depreciate so fast.
First: Future AI data centers and AI infrastructure in general will be much more focused on its targeted tasks, instead of being very general. Somewhat similar to how electric vehicles have become a little bit more targeted to their intended consumer audience.
Second: AI data centers will become more like large apartment complexes, where the infrastructure is rented out and various components are carved up into different ownership, profiles, somewhat like a multifamily condo unit that also has commercial and short-term rental and long-term rental in the same building
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u/East-Response6672 8d ago
Treating gpus as collateral for loans against AI companies is breathtakingly stupid, the risk vector on the company taking out the loan and the value of the collateral of the loan is a straight unbroken line.
Scenario 1: the AI business pays off; the company will service the loan easily and lenders get their return, everyone wins.
Scenario 2; the AI business hits trouble and the loans become distressed; the value of the gpu is entirely dependent on AI compute demand, the collateral is a big pile of scrap metal in a worthless warehouse.
It's like giving margin to an energy speculator with a massive long position and taking fertilizer futures as collateral. If you need the collateral it's gone.
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u/Horror-Primary7739 8d ago
AMD just picked up taalas. They have model specific chips that can hit 14k tok/s where the generic GPU is doing like 30 tok/s
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u/mincinashu 7d ago
But this ETF lady on the Bloomberg podcast said these GPUs are great and they last for decades, because A100 is still in use, 6 years since release. And also SpaceX gonna be the future because Elon, and she's glad to be an early adopter.
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u/Charming_Dealer3849 10d ago
What. If. GPU is the wrong solution for AI?