This opinion piece in the FT explores the validity of the notion that we are living through an AI bubble. Richard Waters first asks whether there is overcapacity in the datacentre industry. The answer to this rhetorical question is straightforward:
“Start with the boom in data centre construction. Most of this still lies in the future. Bubble talk really took off around the time OpenAI started disclosing the long-term deals it has put in place to support $1.4tn of planned investments.
Much of this is notional, though: So far, OpenAI and Nvidia have firmly committed to building only a tenth of the potential capacity covered by their giant, $100bn deal. The rest will only follow if demand lives up to the companies’ hopes, and if other investors can be found to foot the bill.
For the foreseeable future, the AI market is facing a shortage of capacity — hardly the kind of conditions that spell imminent disaster.”
Then Mr Waters asks whether there is an over-supply of the chips which power the AI LLMs. The answer to that question is also straightforward:
“The demand for AI chips, meanwhile, continues to soar, prompting AMD this week to predict an annual market of $1tr by 2030. Nvidia is widely expected to underline the boom when it reports its latest earnings next week. Chip stocks are usually deeply cyclical, and a pullback in data centre spending would cause a serious dent, but that moment is not yet in sight.”
Finally, Mr Waters asks whether the AI LLMs are over-hyped: “Handicapping the rate of growth is different from concluding that the technology, in its current form, will never be able to support the investments that are planned. The real bubble risk is that inherent weaknesses in large language models — like their tendency to hallucinate — will limit their usefulness, or that the costs of running them will make them chronically uneconomic for many purposes. It won’t be clear for some time whether this will become a serious barrier to growth.”
Mr Waters’ conclusion is that until we know the limits to which LLMs can be pushed, it is hard to say that we are in an AI bubble. In other words, until we know the numerator of the ROI ratio, it would be premature to call this an AI bubble.
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