A version of this story originally appeared on TKer.co.
Will AI turn out to be a bubble like the one we experienced 25 years ago with the Internet boom?
Financial author Phil Rosen asked me what I thought about his show, “”
I think we should be optimistic about the future, but also worry about how things will develop as we get there.
Whenever a revolutionary breakthrough in innovation and technology occurs, excitement about the opportunity will inevitably lead to overinvestment.
As I have written for the past two years, I believe that . , companies have identified ways to use AI to get things done faster and often more economically. This is the fundamental offering of productivity-enhancing technology: IT and/or money.
People will pay to save time and money. And economics 101 teaches us that where there is demand, there will be supply.
And that offering comes with staggering amounts of investment, with mountains of cash funding capital expenditures, tons of venture capital flowing into new startups, and plenty of savings being reallocated to publicly traded companies that advance AI technology.
Many of those investments will prove lucrative. And many things will fail.
This behavior is not new. It echoes past technological advances.
In , Warren Buffett made this observation about the automobile boom of the early 20th century.
“This transformed the country,” he said. “There were at least 2,000 companies that got into the car business because it clearly had an incredible future. And of course, remember in 2009 there were three left.”
Another example of a once-booming industry is rail transportation.
We often talk about how big the tech sector has become as a part of the stock market, drawing parallels to the dot-com bubble. But it cannot be compared with the railway of a hundred years ago.
“At the beginning of the 20th century, markets were dominated by railways, which accounted for 63% of the US stock market value and almost 50% in the UK,” say UBS analysts.
I don’t know much about the 19th century. However, I understand that there were hundreds of railway companies funded by those eager to profit from building the country’s logistics infrastructure. And the rise of the industry also came with .
Railroads and automobiles continue to deliver on their promises of saving us time and money. But we wouldn’t have what we have today without excessive investment and a couple of financial blow-ups.