How many different AI tools do you use? I use two: ChatGPT and Claude.ai. Between the two of them, I get everything I actually need. Many people are now using AI instead of Google or other search engines because they find it more efficient.
All that being said, according to an article in Business Insider, economists are warning that AI is exhibiting the signs of a bubble. Big tech AI spending is soaring fast, mirroring the dot-com overbuild before the 2000 crash. They’re now warning that higher interest rates could burst the bubble.
The Real Cost of AI
It takes a lot to run an AI system. It requires literally thousands of square feet of buildings, thousands upon thousands of servers, massive amounts of electricity, and abundant natural resources. That electric bill has to get paid every month. Plus, servers break down and need to be replaced, leaving the question: what do they do with the obsolete servers? Are they being thrown out? Are they being recycled? I don’t have an answer for that.
But I will tell you this: the AI companies are not making money. According to this article, the AI surge now checks every box on a four-part bubble checklist, and a single trigger could bring it all crashing down next year. Higher interest rates reduce the availability of cheap capital that’s been fueling AI investment, which could put it in a downward spiral.
Echoes of the Dot-Com Era
AI is being used more than companies originally thought it would, and analysts are making this comparable to the dot-com era. Valuations of major players grew enormously and then crashed. Is that about ready to happen now? Could it be the natural order of things? I don’t know.
I’m trying to make myself less dependent on AI. As a matter of fact, I don’t use AI much at all. I find it annoying that I’m forced to use it just about every time I go to a website. Customer service on web providers is now being handled by AI, and I don’t like that. I want to have my customer service with people.
The AI Arms Race
The AI companies are issuing massive amounts of debt to fund this AI arms race. Who’s going to be the biggest? Is it going to be Claude? Meta? Amazon? Microsoft? They are the biggest issuers of debt, according to this article. This is all very classic of a late-cycle bubble sign.
Analysts estimate that roughly 60% of US economic growth this year has been driven by AI, both through companies pouring money into new infrastructure and through stock market wealth building. Without AI, the underlying economy looks pretty weak.
A Dangerous Dependency
All of a sudden, within the last couple of years, we’ve gotten ourselves into a dangerously crowded field with so many businesses and people depending upon AI. I remember saying the same thing about the internet some years ago. I remember in the eighties when we didn’t have an internet, and the country seemed to get along just fine. As a matter of fact, we thrived. But the next thing you knew, the internet controlled our banking and everything else. Now we’re finding AI doing the same thing.
The Breaking Point
2026 could actually be the breaking point. Inflation remains sticky and far from the Fed’s target of 2%. The Fed has missed its target for five consecutive years and may soon be pressured to halt its interest rate cuts. This could be deadly for all of the AI companies.
You might want to think about not depending on AI as much as we immediately threw our entire lives into the internet. Maybe we should try thinking for ourselves.
My Personal Use of AI
When I write this newsletter, I use AI to edit it. I type everything out, get it all ready, and before I turn it in to our secretary, I want to make sure all the spelling and punctuation are correct. I use Claude AI for that. I take my text file, stick it in there, and it goes through and does all the editing for me, which I’m very grateful for. Then it gives me a cut-and-paste document that’s ready for me to put into Microsoft Word and send off to the secretary who publishes this newsletter every week.
I’m doing all the work, but I’m using AI to do the editing. Would I be willing to give that up? Sure, I would be willing to give that up. I might be forced to give that up if some of these AI companies just stop existing, and the possibility of that happening is real. The more dependent the economy is on AI, and if the economy does not correct itself and get better, we could see lots of these companies just closing up shop.
What’s Next?
Right now, all of the AI that I use is the free version. I do not pay for AI. That may end as things get tougher. They might have to start charging for everything. Will I use it then? I don’t know. All I need is another bill to pay, especially when I’ve lived my whole life without paying for AI because I’ve lived my whole life without AI.
I think we’re just going to have to wait and see.
Tell me what you think, and we’ll see you next Wednesday.