AI doesn't just jack up your energy costs and use up all your drinking water, it will also crash the economy

I firmly believe the (economic) AI apocalypse is coming. These companies are not profitable. They can't be profitable. They keep the lights on by soaking up hundreds of billions of dollars in other people's money and then lighting it on fire. Eventually those other people are going to want to see a return on their investment, and when they don't get it, they will halt the flow of billions of dollars. Anything that can't go on forever eventually stops.

This isn't like the early days of the web, or Amazon, or any of those other big winners that lost money before becoming profitable. Those were all propositions with excellent "unit economics" – they got cheaper with every successive technological generation, and the more customers they added, the more profitable they became. AI companies have – in the memorable phraseology of Ed Zitron – "dogshit unit-economics." Each generation of AI has been vastly more expensive than the previous one, and each new AI customer makes the AI companies lose more money.

This week, no less than the Wall Street Journal published a lengthy, well-reported story (by Eliot Brown and Robbie Whelan) on the catastrophic finances of AI companies:

The WSJ writers compare the AI bubble to other bubbles, like Worldcom's fraud-soaked fiber optic bonanza (which saw the company's CEO sent to prison, where he eventually died), and conclude that the AI bubble is vastly larger than any other bubble in recent history.

The data-center buildout has genuinely absurd finances – there are data-center companies that are collateralizing their loans by staking their giant Nvidia GPUs as collateral. This is wild: there's pretty much nothing (apart from fresh-caught fish) that loses its value faster than silicon chips. That goes triple for GPUs used in AI data-centers, where it's normal for tens of thousands of chips to burn out over a single, 54-day training run.

That barely scratches the surface of the funny accounting in the AI bubble. Microsoft "invests" in Openai by giving the company free access to its servers. Openai reports this as a ten billion dollar investment, then redeems these "tokens" at Microsoft's data-centers. Microsoft then books this as ten billion in revenue.

That's par for the course in AI, where it's normal for Nvidia to "invest" tens of billions in a data-center company, which then spends that investment buying Nvidia chips. It's the same chunk of money is being energetically passed back and forth between these closely related companies, all of which claim it as investment, as an asset, or as revenue (or all three).

The Journal quotes David Cahn, a VC from Sequoia, who says that for AI companies to become profitable, they would have to sell us $800 billion worth of services over the life of today's data centers and GPUs. Not only is that a very large number – it's also a very short time. AI bosses themselves will tell you that these data centers and GPUs will be obsolete practically from the moment they start operating. Mark Zuckerberg says he's prepared to waste "a couple hundred billion dollars" on misspent AI investments:

Bain & Co says that the only way to make today's AI investments profitable is for the sector to bring in $2 trillion by 2030 (the Journal notes that this is more than the combined revenue of Amazon, Google, Microsoft, Apple Nvidia and Meta):

Today's AI bubble has absorbed more of the country's wealth and represents more of its economic activity than historic nation-shattering bubbles, like the 19th century UK rail bubble. A much-discussed MIT paper found that 95% of companies that had tried AI had either nothing to show for it, or experienced a loss:

The most important thing about AI isn't its technical capabilities or limitations. The most important thing is the investor story and the ensuing mania that has teed up an economical catastrophe that will harm hundreds of millions or even billions of people. AI isn't going to wake up, become superintelligent and turn you into paperclips – but rich people with AI investor psychosis are almost certainly going to make you much, much poorer.