Deutsche Bank Notices That a Needle Is Getting Dangerously Close to the AI Bubble

Money seems to endlessly flow in the AI space, whether it’s Nvidia announcing a $100 billion investment in OpenAI or OpenAI planning to build more massive data centers before the first $500 billion project is even completed. Eventually, some of the folks who have poured money into these ventures are going to expect to see some return on investment. According to a research note from Deutsche Bank, it’s getting harder and harder to see how that is going to happen.

Fortune reports that a note written by George Saravelos of Deutsche Bank warned that spending in the AI sector is “parabolic.” In fact, it is so vast, the researcher said, that it might single-handedly be propping up the American economy. “AI machines—in quite a literal sense—appear to be saving the U.S. economy right now,” he wrote. “In the absence of tech-related spending, the U.S. would be close to, or in, recession this year.” That checks out: earlier this year, the Wall Street Journal reported capital expenditure spending for AI contributed more to growth in the US economy than all consumer spending combined has so far this year.

If you want to narrow it down even further, you can. Saravelos pointed to chipmaker Nvidia specifically and says the company is “currently carrying the weight of U.S. economic growth.” All that has to happen for the company to continue shouldering the entirety of the economy on its back is for its growth to be endlessly exponential. No problem, right? “The bad news is that in order for the tech cycle to continue contributing to GDP growth, capital investment needs to remain parabolic. This is highly unlikely,” Saravelos warned.

Shoot.

Now, you don’t really have to be an economist to know that it’s usually a bad idea to have all your eggs in one basket. But just in case, here is one to tell us: Torsten Sløk, the chief economist at asset management firm Apollo, wrote last week that “The bottom line is once again that there is an extreme degree of concentration in the S&P 500, and equity investors are dramatically overexposed to AI.”

To put some numbers to it, here’s some math from a recent report published by consulting company Bain & Company. The firm says that “AI’s compute demand grows at more than twice the rate of Moore’s Law,” and by 2030, the computing power needed to satisfy AI demand would come at a cost of two trillion dollars per year. “The world is still $800 billion short to keep pace with demand,” Bain & Co writes. 

Pair that with the report that came out of MIT earlier this year, which found that just 5% of businesses that have adopted generative AI tools have managed to achieve “rapid revenue acceleration,” while the rest have largely fallen flat, and it becomes a little hard to see the case for profitability being just around the corner. But hey, who knows, maybe we’re just another small $500 billion investment away from making it all click. Any takers?