We’ve been following this conversation here in The Editors’ Blog about what AI is, what it can do and whether it can possibly live up to its hype. It’s worth considering the question from what we might loosely call not only the supply side but also the demand side. From a very broad perspective, the history of the last three decades has been one defined by the fact that you have too much capital chasing too few productive investments. That’s the driver of the recent history of cycles of booms, bubbles, over-investment and busts: the Asian Financial Crisis, the Dot Com Bust, the Global Financial Crisis, perhaps soon the AI Bubble Collapse, along with many smaller of regional ones.
If you go back to the middle of the last decade, the big tech platforms were massive, and were entrenching their monopoly power in various segments of the tech economy and the national and global economy generally. The exponential growth of earlier years was giving way to merely arithmetic growth if not stagnation. In a key sign of change, the tech world, which had ignored Washington, D.C. as hidebound, sclerotic and irrelevant to their world, started pouring real sums into the lobbying and influence games like the rest of corporate America. There was a huge, huge hunger for the next thing which would bring back the financial explosion of a decade or more earlier. AI was by no means the first entrance.
Crypto was a big one and to an extent remains one. But the big one to remember was the “metaverse.” There was a massive craze for the Metaverse which took over Silicon Valley. NFTs, absurd digital things, which people could bid up to insane valuations because other idiots certainly would jump in and buy too, became a thing. Seemingly out of the blue, Facebook announced that it was now a metaverse company and renamed itself Meta in October 2021. In June 2022, McKinsey issued a report that predicted that by 2030 the Metaverse could grow to $5 trillion in value. It’s hard not to notice how close that is to the $6 trillion Bain & Co says AI now has to grow by 2031 in order to keep up with the massive level of capital investment Silicon Valley is pouring into it.
To be clear, I do not think and I’m not saying that AI is like the Metaverse. Even at the moment of peak Metaverse hysteria, lots of people were questioning what possible value there was in a thing no one seemed to want and looked like a jacked-up version of Second Life. There’s no question that AI or really LLMs are a real thing in a way the Metaverse never was. (The release of ChatGPT in November 2022 effectively snuffed out the Metaverse pseudo-boom.) It has already had real impacts on society and is driving real value at least in certain segments of the economy. (The question isn’t whether it’s real but whether it can possibly live up to its boosters’ predictions.) My point isn’t that AI is just like the Metaverse and soon to be forgotten as soon as the Metaverse was. It is rather to point out that we cannot understand the massive capital outlay on AI/LLM without the critical context that the tech platforms were super hungry for something like AI well before it was clear AI would be the thing.
Given how much pent-up desire there was in the world of Big Tech to throw money at things that were manifestly silly or of questionable economic utility and value, it’s hardly surprising that they were willing to spend unimaginable sums once something turned up that actually seemed real.