The AI bust is going to break the economy

The social experiment known as artificial intelligence is being run on all of us, but what happens if it fails?

- Nicole Kobie

AI companies are gambling with an awful lot - and I don't mean the existential threat of AGI killing or enslaving all humans.

The utility of AI is questionable, yet we're chucking trillions of dollars at infrastructure, regardless of its impact on the landscape, water or energy. The firms building these systems don't have the money to pay for it all, so they're building increasingly circular deals that will pay off if it all works out, or lead to serious financial turmoil if not.

OpenAI recently announced a $300 billion contract with Oracle as part of Stargate data centre plans. Analysts at KeyBanc Capital Markets estimated Oracle will need to borrow $100 billion over the next few years to pay for it; if AI stumbles and OpenAI can't pay, that's one heck of a default. Makes me feel better about my credit card debt.

A few weeks later, it was Nvidia's turn. OpenAI ordered at least ten gigawatts of Nvidia's systems, the first of which will come online next year. As each 1GW worth is deployed, Nvidia will invest $10 billion into OpenAI, effectively giving the AI developer the funds to buy the next pile of chips, raising concerns among analysts about the “circular” nature of the deal.