The AI Investment Boom

Reading this makes me willing to bet that this capital intensive investment boom will be similar to other enormous capital investment booms in US history, such as the laying of the railroads in the 1800s, the proliferation of car companies in the early 1900s, and the telecom fiber boom in the late 1900s. In all of these cases there was an enormous infrastructure (over) build out, followed by a crash where nearly all the companies in the industry ended up in bankruptcy, but then that original infrastructure build out had huge benefits for the economy and society as that infrastructure was "soaked up" in the subsequent years. E.g. think of all the telecom investment and subsequent bankruptcies in the late 90s/early 00s, but then all that dark fiber that was laid was eventually lit up and allowed for the explosion of high quality multimedia growth (e.g. Netflix and the like).

I think that will happen here. I think your average investor who's currently paying for all these advanced chips, data centers and energy supplies will walk away sorely disappointed, but this investment will yield huge dividends down the road. Heck, I think the energy investment alone will end up accelerating the switch away from fossil fuels, despite AI often being portrayed as a giant climate warming energy hog (which I'm not really disputing, but now that renewables are the cheapest form of energy, I believe this huge, well-funded demand will accelerate the growth of non-carbon energy sources).

I'm sure you are right. At some point, the bubble will crash.

The question remains is when the bubble will crash. We could be in the 1995 equivalent of the dotcom boom and not 1999. If so, we have 4 more years of high growth and even after the crash, the market will still be much bigger in 2029 than in 2024. Cisco was still 4x bigger in 2001 than in 1995.

One thing that is slightly different from past bubbles is that the more compute you have, the smarter and more capable AI.

One gauge I use to determine if we are still at the beginning of the boom is this: Does Slack sell an LLM chatbot solution that is able to give me reliable answers to business/technical decisions made over the last 2 years in chat? We don't have this yet - most likely because it's probably still too expensive to do this much inference with such high context window. We still need a lot more compute and better models.

Because of the above, I'm in the camp that believe we are actually closer to the beginning of the bubble than at the end.

Another thing I would watch closely to see when the bubble might pop is if LLM scaling laws are quickly breaking down and that more compute no longer yields more intelligence in an economical way. If so, I think the bubble would pop. All eyes are on GPT5-class models for signs.

I've been calling a crash for far too long so take with a pinch of salt BUT I think another four years of this is very unlikely.

1996 - Cisco was 23.4B or 0.3% of US GDP

2000 - Cisco peaked at 536B or 5.2% of US GDP

2020 - Nvidia was 144B or 0.7% of US GDP

2024 - Nvidia is 3.4T or 11.9% of US GDP

Numbers very rough and from different sources, but I'd be surprised if Nvidia doesn't pop within 1-2 years at most.

This comparison is silly. First of all, Cisco's scale was assembled through acquisitions, and hardware is a commodity business. Nvidia has largely grown organically and has CUDA software as a unique differentiator.

More importantly, Cisco's margins and PE were much higher than Nvidia's today.

You should use actual financial measures and not GDP national accounts which have zero bearing on business valuation.