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This article is all vapor. After reading it in it's entirety, there is only a short section that's actually about the headline, and it communicates nothing abou

by cvoss 1y ago

This article is all vapor. After reading it in it's entirety, there is only a short section that's actually about the headline, and it communicates nothing about what the headline means. What is 17x what?

cogogo 1y ago
A quick and dirty google shows that global financial institutions wrote down 1-2 trillion in mortgage related securities, a ~6trn drop in the us real estate mkt and another 6trn destroyed in the equities mkt. Not sure I really trust these numbers but they are the right order of magnitude. I have a very hard time believing the AI bubble is as big as the subprime bubble. But it very well could help trigger a massive correction and recession on a similar scale because everything else that has been propped up by low rates will likely correct with it.
- simonh 1y ago
  In the subprime crisis 10 million American families lost their homes and 8.7 million people lost their jobs. In the case of the collapse of an AI bubble, I don't see as much of a direct relationship to effects on the average Joe. Yes all those billions spent by tech investors will get written off, the companies heavily invested in AI will shed well paid tech jobs in a sector that was craving talent anyway. I think the biggest effect would be the fact that all that capital was spent on AI tech rather than productive assets and businesses. That's a big opportunity cost, and would hit growth, but I don't see it wiping out ordinary people in the same way. The pain will be heavily concentrated on investors and for everyone else it will just be a slow drag but not a catastrophe. The real problem is if there are other negative economic effects that compound with it.
  - smsm42 1y ago
    > In the subprime crisis 10 million American families lost their homes When you say "lost their homes", do you mean "I owned the house and somehow I now own no house and have no money for it, it just evaporated", or do you mean "I took a loan I could not afford, on a house I could not afford, while investing a tiny amount of money or none at all into the deal, and hoping to profit from ever increasing prices, and using my equity as an infinite-money ATM, and when that stopped, the bank took the house back"? If the latter, then what was lost is not "homes" but unrealistic prospects of profits from the thin air. If the former, I'd like to know how exactly a subprime crisis could cause something like that.
    - pixl97 1y ago
      That is a very broad and angry brush you're painting with. There were plenty of people that bought houses at reasonable prices and down-payments and still lost their ass when downstream ramifications took out unrelated businessss.
      - smsm42 1y ago
        I don't doubt that, I just think when throwing around million-sized numbers it is necessary to be aware that these numbers are not describing one case, they describe a lot of different cases. There were a lot of people that were hurt by the subprime fallout (myself included, though I did not lose a home because I could not afford one at the time anyway) and also a lot of people engaging in absolutely reckless speculation (which also was one of the reasons why I was not able to afford a home at the time). There's more than one side to that picture, and some of the people who gut hurt were also the people who made it possible to get that crazy in the first place.
    - xboxnolifes 1y ago
      Actual people lived in those actual homes and ended up being actually hurt in the housing market crash. Actual people are not relying on actual AI. And I doubt many actual people would be hurt by the AI crash.
      - amdsn 1y ago
        I don't share your doubts. Even people not directly exposed to the bubble may be indirectly exposed by way of funds they've invested in or retirement accounts, or even just by having invested in something that invested in something that may evaporate with the bubble. Not to mention jobs that may disappear, which will result in the people who held those jobs being less able to spend their money, which has knock-on effects in the rest of the economy if it happens at large enough scale.
    - BobaFloutist 1y ago
      Didn't a lot of people lose their houses because they bought a house with a mortgage payment they could absolutely afford with their income, and then got laid off when the economy contracted? And, frankly, it's literally the bank's job not to make loans that people will default on too frequently (for their own sake), so if you're not exceptionally knowledgeable about banking, it's not unreasonable to trust your bank and their advisors not to make a loan you won't be able to pay back. Like, sure, you shouldn't trust them not to screw you on the terms and with interest, but banks mostly are trying to make loans they expect to get paid back, and I would personally expect them to have a good idea of how much they can trust me with.
  - vouwfietsman 1y ago
    AFAIK its theorized much of the GDP growth of the US, as well as the stock market growth of important index funds, is mostly as a result of select tech companies surfing the AI hype. In that case, a prolonged recession may occur (that would've occurred anyway), and the effect will be felt throughout the economy. But, again, that's just a general recession being triggered by the AI bubble bursting, i.e. AI no longer propping up the economy, so that's not a bad thing. What the results of that are in terms of severity or impact I wouldn't know, I don't think anyone knows.
    - WillPostForFood 1y ago
      Why do you think it would be a prolonged recession? Dot com bust, for example, was just two quarters of GDP decline, followed by solid growth. 2007 was much worse, because it was a crisis of financial institutions. AI bubble may be bigger than dot com, but feels more like it in that is a narrow section of the economy. Even more narrow than dot com.
      - vouwfietsman 1y ago
        Well I think nobody knows this stuff, so don't take my word for it. I think prolonged makes sense because AI is holding off a depression, but that depression does not have a singular obvious cause. I think there's a bunch of reasons to be pessimistic about the global economy, including of course (geo)political, (trade)wars, extremism, stagnating production, etc. Contrary to the dotcom bubble, current AI might not actually be a useful-but-overvalued tech. It may just not be that useful at all. In that case, a rally like dotcom is out.
- nefarious_ends 1y ago
  [flagged]
anthomtb 1y ago
No link to the original research note. No real details on the methodology used. A few notes on the well-known lack of an AI business model (similar things were said about search in the late 90's). I just don't see how the broader market is exposed to an AI crash in the way it was exposed to subprime loans. If OpenAI goes belly up is it really taking anyone else down with it?
- pizzathyme 1y ago
  A shocking statistic is that YTD, 1/6th of the 2% rise in US GDP this year is attributable to AI Datacenters alone. Source: https://www.economist.com/finance-and-economics/2025/08/18/how-americas-ai-boom-is-squeezing-the-rest-of-the-economy https://www.economist.com/finance-and-economics/2025/08/18/h... So I think if there was an AI crash, US economy goes with it in the short term
  - hintymad 1y ago
    During the dot-com era, internet or IT in general accounted for a much smaller percentage of the GDP. So, I'm not sure how the percentage of GDP can help us gauge the scale of the bubble, if any.
    - AbstractH24 1y ago
      Doesn’t that prove the post’s hypothesis that this could be larger?
- caust1c 1y ago
  When you're talking the size of investment that AI-centric companies have received, on the order of hundreds of billions of dollars, there's no way it's not exposed to the wider market. But I agree with you, the article is too light on details for how inflammatory it is.
- coryfklein 1y ago
  There's good reason to believe that OpenAI's success (or failure) and the success of many other firms are correlated. If OpenAI's bubble bursts, then that is likely to spread to other close firms and – depending on severity – any other firms that are merely associated. NVDA, MSFT, AAPL, META, and GOOG are all heavily investing in AI right now, and together make up 28% of the money tied up in S&P 500 indices. Simply investing in the S&P 500, which many people do, exposes you to meaningful downside risk of an AI bubble pop.
rtkwe 1y ago
It seems the link has been replaced with a Morningstar report instead of the blagspam trial funnel originally linked.
paulpauper 1y ago
Agree. The reason given and examples are totally vapid. Artificially low interest rates have stimulated investment into AI that has hit scaling limits, says research firm He blames "low interest rates," yet interest rates have surged since 2022 to their highest levels in decades. He cannot even get the basic facts right, which kills his credibility at the start. This also torpedos a common narrative that high interest rates are always bad for asset prices. The difference between 1% vs 5% interest rates does not factor much into VC decisions when the expectations are for 40-100+% annual returns with the hottest AI companies, which far exceeds the additional cost of borrowing. A similar pattern was seen in the the '80s and the late '90s, in which high interest rates also coincided with high valuations of tech companies. This means a much longer effort at reflation, a bit like what we saw in the early 1990s, after the S&L crisis, and likely special measures as well, as the Trump administration seeks to devalue the US$ in an effort to onshore jobs," he says. In an attempt to paint a negative picture of impending crisis, he gives examples, of 2001 and 1991, of among the mildest recessions ever. The US stock market and economy would go on to boom in 1995, just a few years after the S&L crisis. If there is a job that AI needs to automate, it's these overpaid and useless analysts.
deleted 1y ago
[deleted]
tim333 1y ago
The source for all this stuff, the 17x, is a guy called Julien Garran who wrote a report which has the been quoted in all these spammy articles. You can see him talking about the research here https://youtu.be/uz2EqmqNNlE?t=40 https://youtu.be/uz2EqmqNNlE?t=40 The 17x refers to a macro model based on the "cumulative Wicksell spread" that suggests the stock market may be overvalued due to interest rates, nothing about AI specifically. The youtube talk, and the slides which are from his report are quite interesting, and I think the economic analysis is quite good, though he's not a tech/AI guy. As far as I can figure for the Wicksell spread you calculate (annual GDP growth) +2% - (annual interest rates) and then integrate that which gives a graph with bumps on and the current bump is 17x the size of the one at the time of the dot com bubble.

by cvoss 1y ago

cogogo 1y ago

A quick and dirty google shows that global financial institutions wrote down 1-2 trillion in mortgage related securities, a ~6trn drop in the us real estate mkt and another 6trn destroyed in the equities mkt. Not sure I really trust these numbers but they are the right order of magnitude. I have a very hard time believing the AI bubble is as big as the subprime bubble. But it very well could help trigger a massive correction and recession on a similar scale because everything else that has been propped up by low rates will likely correct with it.

simonh 1y ago
In the subprime crisis 10 million American families lost their homes and 8.7 million people lost their jobs. In the case of the collapse of an AI bubble, I don't see as much of a direct relationship to effects on the average Joe. Yes all those billions spent by tech investors will get written off, the companies heavily invested in AI will shed well paid tech jobs in a sector that was craving talent anyway. I think the biggest effect would be the fact that all that capital was spent on AI tech rather than productive assets and businesses. That's a big opportunity cost, and would hit growth, but I don't see it wiping out ordinary people in the same way. The pain will be heavily concentrated on investors and for everyone else it will just be a slow drag but not a catastrophe. The real problem is if there are other negative economic effects that compound with it.
- smsm42 1y ago
  > In the subprime crisis 10 million American families lost their homes When you say "lost their homes", do you mean "I owned the house and somehow I now own no house and have no money for it, it just evaporated", or do you mean "I took a loan I could not afford, on a house I could not afford, while investing a tiny amount of money or none at all into the deal, and hoping to profit from ever increasing prices, and using my equity as an infinite-money ATM, and when that stopped, the bank took the house back"? If the latter, then what was lost is not "homes" but unrealistic prospects of profits from the thin air. If the former, I'd like to know how exactly a subprime crisis could cause something like that.
  - pixl97 1y ago
    That is a very broad and angry brush you're painting with. There were plenty of people that bought houses at reasonable prices and down-payments and still lost their ass when downstream ramifications took out unrelated businessss.
    - smsm42 1y ago
      I don't doubt that, I just think when throwing around million-sized numbers it is necessary to be aware that these numbers are not describing one case, they describe a lot of different cases. There were a lot of people that were hurt by the subprime fallout (myself included, though I did not lose a home because I could not afford one at the time anyway) and also a lot of people engaging in absolutely reckless speculation (which also was one of the reasons why I was not able to afford a home at the time). There's more than one side to that picture, and some of the people who gut hurt were also the people who made it possible to get that crazy in the first place.
  - xboxnolifes 1y ago
    Actual people lived in those actual homes and ended up being actually hurt in the housing market crash. Actual people are not relying on actual AI. And I doubt many actual people would be hurt by the AI crash.
    - amdsn 1y ago
      I don't share your doubts. Even people not directly exposed to the bubble may be indirectly exposed by way of funds they've invested in or retirement accounts, or even just by having invested in something that invested in something that may evaporate with the bubble. Not to mention jobs that may disappear, which will result in the people who held those jobs being less able to spend their money, which has knock-on effects in the rest of the economy if it happens at large enough scale.
  - BobaFloutist 1y ago
    Didn't a lot of people lose their houses because they bought a house with a mortgage payment they could absolutely afford with their income, and then got laid off when the economy contracted? And, frankly, it's literally the bank's job not to make loans that people will default on too frequently (for their own sake), so if you're not exceptionally knowledgeable about banking, it's not unreasonable to trust your bank and their advisors not to make a loan you won't be able to pay back. Like, sure, you shouldn't trust them not to screw you on the terms and with interest, but banks mostly are trying to make loans they expect to get paid back, and I would personally expect them to have a good idea of how much they can trust me with.
- vouwfietsman 1y ago
  AFAIK its theorized much of the GDP growth of the US, as well as the stock market growth of important index funds, is mostly as a result of select tech companies surfing the AI hype. In that case, a prolonged recession may occur (that would've occurred anyway), and the effect will be felt throughout the economy. But, again, that's just a general recession being triggered by the AI bubble bursting, i.e. AI no longer propping up the economy, so that's not a bad thing. What the results of that are in terms of severity or impact I wouldn't know, I don't think anyone knows.
  - WillPostForFood 1y ago
    Why do you think it would be a prolonged recession? Dot com bust, for example, was just two quarters of GDP decline, followed by solid growth. 2007 was much worse, because it was a crisis of financial institutions. AI bubble may be bigger than dot com, but feels more like it in that is a narrow section of the economy. Even more narrow than dot com.
    - vouwfietsman 1y ago
      Well I think nobody knows this stuff, so don't take my word for it. I think prolonged makes sense because AI is holding off a depression, but that depression does not have a singular obvious cause. I think there's a bunch of reasons to be pessimistic about the global economy, including of course (geo)political, (trade)wars, extremism, stagnating production, etc. Contrary to the dotcom bubble, current AI might not actually be a useful-but-overvalued tech. It may just not be that useful at all. In that case, a rally like dotcom is out.
nefarious_ends 1y ago
[flagged]

anthomtb 1y ago

No link to the original research note. No real details on the methodology used. A few notes on the well-known lack of an AI business model (similar things were said about search in the late 90's). I just don't see how the broader market is exposed to an AI crash in the way it was exposed to subprime loans. If OpenAI goes belly up is it really taking anyone else down with it?

pizzathyme 1y ago
A shocking statistic is that YTD, 1/6th of the 2% rise in US GDP this year is attributable to AI Datacenters alone. Source: https://www.economist.com/finance-and-economics/2025/08/18/how-americas-ai-boom-is-squeezing-the-rest-of-the-economy https://www.economist.com/finance-and-economics/2025/08/18/h... So I think if there was an AI crash, US economy goes with it in the short term
- hintymad 1y ago
  During the dot-com era, internet or IT in general accounted for a much smaller percentage of the GDP. So, I'm not sure how the percentage of GDP can help us gauge the scale of the bubble, if any.
  - AbstractH24 1y ago
    Doesn’t that prove the post’s hypothesis that this could be larger?
caust1c 1y ago
When you're talking the size of investment that AI-centric companies have received, on the order of hundreds of billions of dollars, there's no way it's not exposed to the wider market. But I agree with you, the article is too light on details for how inflammatory it is.
coryfklein 1y ago
There's good reason to believe that OpenAI's success (or failure) and the success of many other firms are correlated. If OpenAI's bubble bursts, then that is likely to spread to other close firms and – depending on severity – any other firms that are merely associated. NVDA, MSFT, AAPL, META, and GOOG are all heavily investing in AI right now, and together make up 28% of the money tied up in S&P 500 indices. Simply investing in the S&P 500, which many people do, exposes you to meaningful downside risk of an AI bubble pop.

rtkwe 1y ago

It seems the link has been replaced with a Morningstar report instead of the blagspam trial funnel originally linked.

paulpauper 1y ago

Agree. The reason given and examples are totally vapid. Artificially low interest rates have stimulated investment into AI that has hit scaling limits, says research firm He blames "low interest rates," yet interest rates have surged since 2022 to their highest levels in decades. He cannot even get the basic facts right, which kills his credibility at the start. This also torpedos a common narrative that high interest rates are always bad for asset prices. The difference between 1% vs 5% interest rates does not factor much into VC decisions when the expectations are for 40-100+% annual returns with the hottest AI companies, which far exceeds the additional cost of borrowing. A similar pattern was seen in the the '80s and the late '90s, in which high interest rates also coincided with high valuations of tech companies. This means a much longer effort at reflation, a bit like what we saw in the early 1990s, after the S&L crisis, and likely special measures as well, as the Trump administration seeks to devalue the US$ in an effort to onshore jobs," he says. In an attempt to paint a negative picture of impending crisis, he gives examples, of 2001 and 1991, of among the mildest recessions ever. The US stock market and economy would go on to boom in 1995, just a few years after the S&L crisis. If there is a job that AI needs to automate, it's these overpaid and useless analysts.

deleted 1y ago

[deleted]

tim333 1y ago

The source for all this stuff, the 17x, is a guy called Julien Garran who wrote a report which has the been quoted in all these spammy articles. You can see him talking about the research here https://youtu.be/uz2EqmqNNlE?t=40 https://youtu.be/uz2EqmqNNlE?t=40 The 17x refers to a macro model based on the "cumulative Wicksell spread" that suggests the stock market may be overvalued due to interest rates, nothing about AI specifically. The youtube talk, and the slides which are from his report are quite interesting, and I think the economic analysis is quite good, though he's not a tech/AI guy. As far as I can figure for the Wicksell spread you calculate (annual GDP growth) +2% - (annual interest rates) and then integrate that which gives a graph with bumps on and the current bump is 17x the size of the one at the time of the dot com bubble.