James_Nov-Dec_2025_web - Flipbook - Page 77
he data center-utility
romance may be in
for a period of adjustment, if history
repeats itself.
The writing about artificial
intelligence talks increasingly
about the AI bubble and speculates on how and when it will
burst. If this happens, there will
be consequences for the whole
economy and specific consequences for electric utilities,
which have responded to growth
in data centers with big investments in new generation and
upgraded infrastructure.
About $1.5 trillion will be invested worldwide on AI this year,
and this will rise to $4 trillion over
the next several years, according
to widely published calculations.
The Wall Street Journal points
out that while the big tech companies have invested mightily in
AI infrastructure, they have been
joined by many lesser companies,
which are mostly debt-financed,
and this increases the chances of
a shakeout.
It is also akin to the dot-com
bubble of the 1990s, when debt-financed dreams overwhelmed
financial reality.
The underlying problem for AI companies
is that revenues are
almost nonexistent
while expenditures
are gargantuan. Aside
from those companies
with hardware in the game, like
Nvidia, the others are still struggling with business plans.
Few in the AI field have a
clear picture of how they will
make money. Their business plans
are sketchy, but the market has
indulged them anyway.
Whereas players like Alphabet and Meta have been built on
advertising, that doesn’t appear
to be an option with AI. In fact,
Alphabet is seeing its Google
search business impacted by advertising-free AI searches. More
and more people are using the AI
option provided on the Google
search bar.
The dot-com bubble of the
1990s burst spectacularly in 2000,
cutting three quarters of the value
of the Nasdaq and wiping out
many small investors. It was another case of bad business plans
and high expectations.
All of big tech’s leading players are pushing market capitalizations that are history-making: Early in July, Nvidia’s market cap was
$3.85 trillion; Microsoft’s, $3.70
trillion; Apple’s, $3.06 trillion; Amazon’s, $2.33 trillion; Alphabet’s,
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