The AI Crash Scenario

The article "Here’s How the AI Crash Happens" by Matteo Wong and Charlie Warzel, published in The Atlantic, outlines a potential crash scenario stemming from the massive, energy-intensive, and financially speculative boom in AI infrastructure.​

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• The "Nvidia-State": The article argues that the U.S. economy is transforming into an "Nvidia-state," where its growth is increasingly dependent on the AI industry, similar to how a "petrostate" relies on oil. This is exemplified by the colossal market valuations of companies like Nvidia, which has become one of the most valuable companies in history.

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• Massive Infrastructure Build-out: The AI boom is fueling a massive, physical construction of data centers on a scale "visible from orbit," such as the campus in New Carlisle, Indiana. These data centers consume enormous amounts of electricity, with some projects projected to demand more power than entire cities.

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• The Crash Scenario: The "crash" is hypothesized to occur when the immense hype and staggering financial investment—costing hundreds of billions of dollars—fail to deliver the projected economic returns and profits. The article suggests that the valuations are outpacing what the AI products can actually achieve.

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• Financial Bubble: The boom is being financed through complex methods, with comparisons to the financial instruments that led to the 2008 financial crisis. For example, data-center leases are reportedly being repackaged into bonds and sold.

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• Inevitable Disruption: The authors conclude that whether the AI boom continues or busts, it will likely cause "real, painful disruption" for ordinary people, particularly through significant job displacement as companies chase the promise of AI-driven automation.