How AI Conquered the US Economy: A Visual FAQ

> it's probably even less likely we would've had just as much investment.

I doubt it. Investors aren't going to just sit on money and let it lose value to inflation.

On the other hand, you could claim non-AI companies wouldn't start a new bubble, so there'd be fewer returns to reinvest, and that might be true, but it's kind of circular.

Why is it "unlikely" that the alternative is not US investment by these US companies?

The big US software firms have the cash and they would invest in whatever the market fad is, and thus, bring it into the US economy.

> 1. People aren't going to take on risk and deploy capital if they can't get a return.

This doesn't seem to align with the behavior I've observed in modern VCs. It truly amazes me the kind of money that gets deployed into silly things that are long shots at best.

I think the explosive growth that people want is in manufacturing. Ex: US screws, bolts, rivets, dies, pcbs, assembly and such.

The dollars are being diverted elsewhere.

Intel a chip maker who can directly serve the AI boom, has failed to deploy its 2nm or 1.8nm fabs and instead written them off. The next generation fabs are failing. So even as AI gets a lot of dollars it doesn't seem to be going to the correct places.

If the economy in my life has taught me anything, it’s that there will always be another bubble. The Innovators Dilemma mentions that bubbles aren’t even a bad thing in the sense that useful technologies are often made during them, it’s just that the market is messy and lots of people end up invested in the bubble. It’s the “throw spaghetti at the wall” approach to market growth. Not too different than evolution, in which most mutations are useless but all mutations have the potential to be transformative.

Or all that money might have been churning around chasing other speculative technologies. Or it might have been sitting in US Treasuries making 5% waiting for something promising. Who knows what is happening in the parallel alternate universe? Right now, it feels like everyone is just spamming dollars and hoping that AI actually becomes a big industry, to justify all of this economic activity. I'm reminded of Danny DeVito's character's speech in the movie Other People's Money, after the company's president made an impassioned speech about why its investors should keep investing:

"Amen. And amen. And amen. You have to forgive me. I'm not familiar with the local custom. Where I come from, you always say "Amen" after you hear a prayer. Because that's what you just heard - a prayer."

At this point, everyone is just praying that AI ends up a net positive, rather than bursting and plunging the world into a 5+ year recession.

> The last 2 years have seen AI, which is a large risk these big companies invested in, pay off

LOL. It's paying off right now, because There Is No Alternative. But at some point, the companies and investors are going to want to make back these hundreds of billions. And the only people making money are Nvidia, and sort-of Microsoft through selling more Azure.

Once it becomes clear that there's no trillion dollar industry in cheating-at-homework-for-schoolkids, and nvidia stop selling more in year X than X-1, very quickly will people realize that the last 2 years have been a massive bubble.

> Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable.

If you’re referencing Trump’s tariffs, they have only come into effect now, so the economic effects will be felt in the months and years ahead.

There was always some subset of the S&P that mattered way more than the rest, just like the S&P matters way more than the Russel.

Typically, you probably need to go down to the S&P 25 rather than the S&P 10.

> They are also all tech companies, which had a really amazing run during Covid.

Only 8 out of the 10 are. Berkshire and JP Morgan are not. It is also arguable whether Tesla is a tech company or whether it is a car company.

I'm curious to see the bubble burst. I personally don't think it will be anything like the dotcom era.

The benefits have just not been that wide ranging to the average person. Maybe I'm wrong but, I don't AI hype as a cornerstone of US jobs, so there's no jobs to suddenly dry up. The big companies are still flush with cash on hand, aren't they?

If/when the fad dies I'd think it would die with a wimper.

> Other than NVIDIA, the profits of the S&P 10 haven't risen either.

That’s not correct. Did you mean something else?

We are still in the "land grab" phase where companies are offering generous AI plans to capture users.

Once users get hooked on AI and it becomes an indispensable companion for doing whatever, these companies will start charging the true cost of using these models.

It would not be surprising if the $20 plans of today are actually just introductory rate $70 plans.

There's also the difference that the internet worked.

Mm. Partial agree, partial disagree.

These things, as they are right now, are essentially at the performance level of an intern or recent graduate in approximately all academic topics (but not necessarily practical topics), that can run on high-end consumer hardware. The learning curves suggest to me limited opportunities for further quality improvements within the foreseeable future… though "foreseeable future" here means "18 months".

I definitely agree it's a bubble. Many of these companies are priced with the assumption that they get most of the market; they obviously can't all get most of the market, and because these models are accessible to the upper end of consumer hardware, there's a reasonable chance none of them will be able to capture any of the market because open models will be zero cost and the inference hardware is something you had anyway so it's all running locally.

Other than that, to the extent that I agree with you that:

> GenAI in its current form will never be reliable enough to do so-called "Agentic" tasks in everyday lives

I do so only in that not everyone wants (or would even benefit from) a book-smart-no-practical-experience intern, and not all economic tasks are such that book-smarts count for much anyway. This set of AI advancements didn't suddenly cause all cars manufacturers to suddenly agree that this was the one weird trick holding back level 5 self driving, for example.

But for those of us who can make use of them, these models are already useful (and, like all power tools, dangerous when used incautiously) beyond merely being coding assistants.

> GenAI in its current form will never be reliable enough to do so-called "Agentic" tasks in everyday lives

No, but GenAI in it's current form is insanely useful and is already shifting the productivity gears into a higher level. Even without 100% reliable "agentic" task execution and AGI, this is already some next level stuff, especially for non-technical people.

I fully agree that there will be a pop, there must be. Current evaluations and investments are based on monumentally society destroying assumptions. But with every disappointing, incremental and non evolutionary model generation the chance increases that the world at large realizes that those assumptions are wrong.

What should I do with my ETF? Sell now, wait for the inevitable crash? Be all modern long term investment style: "just keep invested what you don't need in the next 10 years bro"?

This really keeps me up at night.

The Internet in its 1999 form was never going to be fast enough or secure enough to support commerce, banking, or business operations.

It definitely feels identical. We had companies that never had any hope of being profitable (or even doing anything related to the early internet to begin with), but put .com in your name and suddenly you are flooded with hype and cash.

Same thing now with AI. The capital is going to dry up eventually, no one is profitable right now and its questionable whether or not they can be at a price consumers would be willing or able to pay.

Models are going to become a commodity, just being an "AI Company" isn't a moat and yet every one of the big names are being invested in as if they are going to capture the entire market, or if there even will be a market in the first place.

Investors are going to get nervous, eventually, and start expecting a return, just like .com. Once everyone realizes AGI isn't going to happen, and realize you aren't going to meet the expected return running a $200/month chatbot, it'll be game over.

It's reassuring to be reminded that every child in America must justify their existence or starve to death.

I don't see how it would "all pop" - same as with the internet bubble, even if the massive valuations disappear, it seems clear to me that the technology is already massively disruptive and will continue growing its impact on the economy even if we never reach AGI.

I don't expect GPT-5 to be anything special, it seems OpenAI hasn't been able to keep its lead, but even current level of LLMs to me justifies the market valuations. Of course I might eat my words saying that OpenAI is behind, but we'll see.