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Wake Up Call
If something seems too good to be true, it probably is.
You might apply this truism to the AI industry, which many experts have warned is a massive bubble on the verge of bursting. It's easy to ignore those warnings, though, when the bubble just keeps getting bigger in the meantime.
This staggering growth is exemplified by the S&P 500, an index tracking the largest five hundred companies listed on the US stock exchange, often considered a reliable barometer of the growth of the economy.
As the Associated Press reports, the S&P 500 is now trending to finish 2024 with a staggering gain of nearly 27 percent. But heed this: that's off the back of a just over 24 percent spike the year before — a back-to-back run that the AP notes hasn't been seen since the catastrophic Dot-com bubble of the late 90s.
Tragedy Turned Farce
That is not an auspicious parallel. After hitting a temporary peak in 1998, the S&P 500 would continue to balloon for a few more years. But by early 2001, the bubble had popped, plunging the US economy into a lengthy recession.
That isn't the only parallel, of course. The Dot-com bubble and our current AI one have an eerie amount in common.
Both were predicated on feverish hype for a new form of transformational digital technology. Then it was the internet. Now it's generative AI.
Each seemingly promised limitless possibilities and thereby limitless profits. But so far, all AI seems really good for is making inferior versions of human art and drafting emails and hallucinating a lot. And like with the Dot-com bubble, profitability remains elusive. No one has figured out how to legitimately make money with this stuff yet.
The Bank Job
As such, sane economists have often pushed back against the breathless hype that the AI industry gets.
Recently, so has the European Central Bank, which is basically the European Union equivalent to the US Federal Reserve.
Per Reuters, the ECB warned last month of a "bubble" in AI stocks, that, "in a context of deeply integrated global equity markets," it said in its biannual Financial Stability Review, "points to the risk of adverse global spillovers, should earnings expectations for these firms be disappointed."
In other words, investors are going to panic if AI doesn't start printing money soon — and the ensuing ramifications could echo in economies the world over.
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