AI’s flimsy house of cards puts markets and U.S. economy at alarming risk
The heads of America’s leading AI development labs have started a national conversation about tapping the brakes on a technology that’s offering so much promise for society, while at the same time showing it can do a frightening amount of harm.
It’s a debate that needs to be had, and a real solution invariably will be hard to come by. But considering the trillions of dollars of investment gains and market value that have been built on the assumption that AI will keep growing at breakneck speed for years and years to come, what happens to Wall Street — and more importantly Main Street — if it doesn’t?
“People may not fully grasp just how wound up the market and the economy is in all of this,” said Jim Morrow, chief executive officer of the Boston investment firm Callodine Capital Management. “There are just so many things to unravel if it starts.”
The stakes have grown alarmingly high over the past four years as artificial intelligence became the foundation upon which the economy and stock market rest. AI-related spending accounts for about half the growth in US gross domestic product, by some estimates, rivaling the level of internet investment during the dot-com bubble.
Nearly $33 trillion in market value has been added to the S&P 500 Index since the AI boom began in late 2022 when OpenAI publicly released ChatGPT. The vast majority is from companies with futures tethered to the technology, like the tech giants spending hundreds of billions of dollars to create more data centers, and the makers of chips and networking gear, providers of electricity and manufacturers of cooling systems needed to generate all that computing power.
That geyser of cash was already controversial before industry insiders started warning that AI’s rapid advance could threaten human extinction. Data centers have become local hot-button issues, with states and municipalities increasingly blocking their construction. Competition from lower-cost Chinese models is rising. Some investors are growing skeptical that they’ll see returns to justify the money being spent. And interest rates are going up, making the massive borrowing needed to fund AI more expensive. [Continue reading…]