There is a lot of discussions about Artificial Intelligence these days. AI can balance your books, spot skin cancer, plan your next trip, and tell you which houseplant you’re about to kill.
AI only arrived in 2022, yet the next generation could design cities that think for themselves, prescribe personalized cures for cancer, and solve problems we haven’t yet learned to name. Soon, we’re told, AI will be smarter than we are.
And AI investments are showing some great returns. In the last three years, Nvidia is up 1,500%, Microsoft 125%, and Meta 466%.(1)
Yikes! Is this sustainable or a bubble that’s about to burst?
Spending on A.I. is breathtaking. Companies are burning through cash with no real profits in sight.
Harris Kupperman, founder of Praetorian Capital Management LLC calls it “one of the most speculative manias I’ve ever looked at.” (2)
He estimates total spending on AI data centers this year at around $400 billion. These centers are made up of three main pieces: the buildings and land, the power systems, wiring, and cooling, and the GPUs themselves. The buildings may last 30 years, but the chips are obsolete in three to five, and the rest in about ten.
By his math, the AI data centers built in 2025 will lose $40 billion a year in value while generating only $15–20 billion in revenue. Calculated as a gross margin, that’s roughly –1900%!
OK – but what about the upside? Is it all bad?
Bryn Hobart in his book, Boom: Bubbles and the End of Stagnation concludes that “financial bubbles, while often maligned as destructive and destabilizing forces, have in fact been the engine of past breakthroughs and will drive future advances.”
In other words: bubbles aren’t all bad. The greatest innovations of the last century – railroads, radio, the internet – were built on the wreckage of overinvestment. We overdo it, crash, and eventually rebuild on sturdier ground.
So maybe bubbles aren’t bad in general – but they’re still bad for the investors who lose money!
AI isn’t going anywhere. The question is whether this moment is genius—or just ahead of its time.
Personally, I’d rather see outrageous profits over outrageous spending. So, let’s keep an eye on it.
Stay the course.
Barbara
October 19, 2025
Source: The Economist, Money Talks, Is the AI boom a bubble? October 9, 2025
1. https://www.slickcharts.com/
2. https://pracap.com/global-crossing-reborn
3. https://www.amazon.com/Boom-Bubbles-Stagnation-Byrne-Hobart/dp/1953953476