The Bank of England Warned About the Risk of a Market Crash Due to Artificial Intelligence.

According to Vox: In recent weeks, OpenAI made several significant announcements. The world's most valuable startup recently launched ChatGPT, which will become akin to an operating system, and also announced its first social network. Rumors about the launch of a device that enhances our mood have also captured attention.

Of course, the situation is not so simple. These massive product announcements came after chipmaker Nvidia, the world's most valuable company, invested $100 billion in OpenAI to create new data centers. OpenAI also signed an agreement with AMD, Nvidia's competitor, to build additional data centers. Some analysts consider these deals to be 'cyclical': one company invests in another, and part of the money comes back. Others call it 'money behavior.'

In total this year, OpenAI has signed deals worth an impressive $1 trillion. This sum will provide the opportunity, for example, to search for homes on Zillow without leaving ChatGPT, star in one's own AI-generated sitcom, or carry a pocket-sized artificial intelligence device for monitoring. However, it is worth noting that OpenAI has never made a profit and is reportedly expecting losses of up to $14 billion by 2026. Despite this, its valuation has risen to $500 billion last week.

These figures are triggering increasing discussions about a possible AI boom and the likelihood of it bursting. On Wednesday, the Bank of England warned about the rising risk of a 'sudden correction' in global markets due to the rising valuations of leading AI companies. On the same day, the director of the International Monetary Fund, Kristalina Georgieva, noted that the valuations of technology companies 'are approaching levels that we saw during the internet boom 25 years ago.' The Nasdaq index peaked on March 10, 2000, after which it crashed.

Bubble-Like Behavior

The idea that we are witnessing another technological bubble is not new. Concerns about this arose more than a decade ago when there were discussions about overpricing in the AI industry even before ChatGPT became popular. But stakes are now higher than ever as investments in the AI industry are flowing into various sectors of the economy.

The AI boom is already extending beyond Silicon Valley: real resources are required to create data centers that power programs like ChatGPT – real estate, construction, air conditioning. In addition, the chip industry is already reliant on one company in Taiwan that manufactures cutting-edge semiconductors for AI. It seems everyone believes that getting involved in AI is an opportunity that cannot be missed.

AI hype is actively lifting other parts of the economy while simultaneously concealing bad news in the US, such as inflation, stagnant growth, and a tough job market for youth, which has likely also been influenced by the emergence of AI. If the AI boom indeed turns out to be a bubble and bursts, the consequences will impact the entire economy.

This is a troubling thought, and it is becoming increasingly likely. Cyclical deal-making is just one of the red flags. Elon Musk's company xAI recently raised $20 billion, part of which came from Nvidia for the purchase of their chips.

Another troubling sign is that we cannot be sure whether these large investments in AI will pay off. AI companies forecast an increase in demand for their products and are thus actively investing in infrastructure to meet this demand if it arises. But all of this remains speculative. Hundreds of billions of dollars spent on data centers resemble the massive investments in internet infrastructure in the 1990s. However, over time, the demand for fiber-optic cables outstripped supply, leading to the telecom industry's collapse.

At the same time, the brightest signs of danger are likely visible in poor sentiments. Overall, Americans are pessimistic about AI and concerns are rising following the launch of ChatGPT. It is still unclear how exactly AI can improve our lives. While ChatGPT has an impressive 700 million active users weekly, whether it will become our new operating system remains in question. It is also still unclear how much AI will be able to enhance productivity. The latest research from MIT showed that 95% of surveyed organizations returned no profit from their AI initiatives.

Perhaps the AI boom will remain as it is, and we will all continue to move into the future with virtual assistants in our ears and data centers in our backyards. But perhaps those who speak of a bubble are right. We may experience not only the collapse of dot-coms in the early 2000s but also the repercussions of a greater crash in the railway industry of the 1840s. During those periods, companies collapsed and people's lives were ruined. However, the infrastructure survived. Winston-London eventually got a railway system, and Silicon Valley got the wire for the internet. Ultimately, we arrived where everything worked.

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