Don’t tell anyone in the stock market, but the AI bubble has been blown up beyond any boundaries of sanity and someday, probably soon, it’s going to pop. From Servaas Storm at nakedcapitalism.com:
Yves here. This is a devastating, must-read paper by Servaas Storm on how AI is failing to meet core, repeatedly hyped performance promises, and never can, irrespective of how much money and computing power is thrown at it. Yet AI, which Storm calls “Artificial Information” is still garnering worse-than-dot-com-frenzy valuations even as errors are if anything increasing.
This paper argues that (i) we have reached “peak GenAI” in terms of current Large Language Models (LLMs); scaling (building more data centers and using more chips) will not take us further to the goal of “Artificial General Intelligence” (AGI); returns are diminishing rapidly; (ii) the AI-LLM industry and the larger U.S. economy are experiencing a speculative bubble, which is about to burst.
The U.S. is undergoing an extraordinary AI-fueled economic boom: The stock market is soaring thanks to exceptionally high valuations of AI-related tech firms, which are fueling economic growth by the hundreds of billions of U.S. dollars they are spending on data centers and other AI infrastructure. The AI investment boom is based on the belief that AI will make workers and firms significantly more productive, which will in turn boost corporate profits to unprecedented levels. But the summer of 2025 did not bring good news for enthusiasts of generative Artificial Intelligence (GenAI) who were all hyped up by the inflated promise of the likes of OpenAI’s Sam Altman that “Artificial General Intelligence” (AGI), the holy grail of current AI research, would be right around the corner.
Let us more closely consider the hype. Already in January 2025, Altman wrote that “we are now confident we know how to build AGI”. Altman’s optimism echoed claims by OpenAI’s partner and major financial backer Microsoft, which had put out a paper in 2023 claiming that the GPT-4 model already exhibited “sparks of AGI.” Elon Musk (in 2024) was equally confident that the Grok model developed by his company xAI would reach AGI, an intelligence “smarter than the smartest human being”, probably by 2025 or at least by 2026. Meta CEO Mark Zuckerberg said that his company was committed to “building full general intelligence”, and that super-intelligence is now “in sight”. Likewise, Dario Amodei, co-founder and CEO of Anthropic, said “powerful AI”, i.e., smarter than a Nobel Prize winner in any field, could come as early as 2026, and usher in a new age of health and abundance — the U.S. would become a “country of geniuses in a datacenter”, if ….. AI didn’t wind up killing us all.
