The AI infrastructure boom is the most important economic story dominating the news. However, the numbers don’t add up, and that realization is starting to spread. Read more in,  This is How the AI Bubble Will Pop:

Tech companies are projected to spend about $400 billion this year on infrastructure to train and operate AI models. By nominal dollar sums, that is more than any group of firms has ever spent to do just about anything. The Apollo program allocated about $300 billion in inflation-adjusted dollars to get America to the moon between the early 1960s and the early 1970s. The AI buildout requires companies to collectively fund a new Apollo program, not every 10 years, but every 10 months.
 

The term ‘hyperscaler’ should be a warning sign to the financially savvy. Demand moves in cycles. Any company or sector that grows exponentially and adds financial leverage to do so is on a well-worn path to misallocated resources and waste. The spend is real, while profits remain largely elusive and aspirational.
 

That’s why you’re starting to hear some people wonder if the AI build-out is turning into the mother of all economic bubbles.

Tech capital expenditures have been ballooning as a percentage of economic growth (as shown below since 2023), as AI spending sucks capital away from pretty much everything else.
 

For equity and credit investors who think they are diversified, the overlap and interconnectedness with the AI bubble are increasingly inherent across a multitude of sectors and securities.

Real Estate Investment Trusts (REITs) are one example, explained in the segment below:

“if you look inside at any large REIT in the United States today, somewhere between 10 and 22% of it is already directly data center related. So if you’re a conservative investor with a, with a REIT in your portfolio, because you’re saying, you know what, I don’t care about any of that crazy tech stuff.

I’m going to be over here safe as houses, commercial real estate or whatever else, getting real estate income. Go have a look inside your REIT, see what’s actually in there today. Two years ago, there was nothing in there related to data centers; in some of the largest ones today, we’re up to 22% that is directly data center-related.

So you’re soaking in it. You’re already in there, my friend.

The entire discussion is well worth listening to.

The prospect of an AI bubble should scare us. Roughly half of last quarter’s GDP growth came from infrastructure spending on AI, and more than half of stock market appreciation in the last few years has come from companies associated with AI. If the AI spending project blows up in the next few years, as our next guest says it might, the implications for technology, the economy, and politics would be immense.

Paul Kedrosky is an investor and writer. Today we talk about the AI capex boom: how it works, who’s financing it, and how financing works. We put the AI build-out in historical context. And then we spend a great deal of time walking through what could go wrong and when it might go wrong. Here is a direct audio link.

• How AI capital expenditures break down
• Why the AI build-out is different from past infrastructure projects, like the railroad and dot-com build-outs
• How AI spending is creating a black hole of capital that’s sucking resources away from other parts of the economy
• How ordinary investors might be able to sense the popping of the bubble just before it happens
• Why the entire financial system is balancing on big chip-makers like Nvidia
• If the bubble pops, what surprising industries will face a reckoning

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