About 65% of the increase in the S&P 500 since 2022 are 42 AI related companies. JP Morgan estimates that about 45% of the S&P 500 is AI focused or AI-adjacent. Between the circular deals, the cross company hype, and willing allies on Wall Street and the White House, the AI bubble has become a very tall house of cards, and if you are in the U.S. market, you are very exposed. Every mutual fund, every 401k, and every index fund has huge exposure to this. Once a house of cards like this starts falling, it is going to impact everyone in the market.
But maybe I am wrong. Maybe this is the technology to end all technologies, and AI becomes about $3-5 trillion of GDP, or 10%-17% of GDP, from maybe $75 billion today, the vast majority of which is CAPEX for future AI spending (You might see bigger market size numbers in some places, but that is mostly people recategorizing existing tech spending as AI). That is how big AI would have to become to justify its spending. By way of comparison, the current software industry is about $600 billion. Anywho, this is what would have to happen for this bubble not to burst. $3-5 trillion of spending. Seems like a long shot.
Maybe this industry is not the clunky, overbuilt, glitchy vaporware that it appears to be. Maybe we are not living through the biggest bubble of our lives, bigger than the 2007 real estate bubble and bigger than the 2000 dotcom bubble. Maybe this was not all done to create artificial growth in a mega tech industry whose growth was slowing dramatically. Maybe.
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