ICSM Business News: THE BIG SHORT - fears of the AI bubble bursting in 2026 with a market crash affecting all levels of business
By Harry Mottram: When America sneezes, Britain catches a cold, as the old saying goes. And so it was in 2000 with the dot.com bubble, the sub-prime scandal in 2008, while in 2026 the consequences of the AI bubble bursting could see another stock market crash, banks calling in loans and firms halting spending. That affects everyone from the high street instant print shop to big infrastructure projects that need vast funds to sustain their development.
A number of commentators, business owners and insiders have been raising concerns about the hype that has made AI firms the hot property for investors with their stock market value soaring. If you use social media such as Tik Tok, it is getting harder to work out what is real and what is made up with AI, or if you work in a firm where AI training is mandatory, or you indeed already use AI to write, think up ideas or process data then you’ll know it is here to stay. So why the reason for the doubts and fears for firms investing in it? Basically, the sums don’t add up – the returns on the trillions pumped into the production of AI by some of the big companies don’t match the small percentage of cash coming in from customers.
In other words, the price to earnings ratio is unsustainable. You may remember the movie The Big Short, where Fund manager Michael Burry, played by Christian Bale (pictured) spots that the USA housing market is overpriced and is due for a collapse in value – he then bets against the market rising – or shorting – and is proved right when the only mortgage lenders, but banks and associated firms crash triggering the sub-prime crisis. Michael Burry announced this year he is betting – or shorting - against AI firms.
Microsoft, Amazon, Google Meta and Oracle are estimated to be budgeting to spend $1trn on AI next year while Open AI is committed to investing another $1.4trn in the next 36 months and in 2025 they’ve only made $20bn in profit – a drop in the ocean compared to what they’re putting into AI. The big seven tech giants have deep pockets, but many smaller firms rely on lenders who are increasingly looking at their ROI and wondering if they will see their money returned. Open AI has 800 million uses but only 5% pay for it while the US census bureau estimate AI is only bought by 12% of users. In business if only 12% of your customers paid for your services you’d soon go bust.
Ian Carrotte of ICSM has concerns that if America does see the AI bubble burst then the repercussions would be similar to the sub-prime collapse. And that would see firms in this country getting cold feet about spending on staff, kit and new outlets, while banks would do what they always do in a recession and stop lending to small businesses.
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