Artificial intelligence is the next frontier – but is it also the next bubble? That's the question investors have been asking since tech giants began investing billions of dollars in AI and driving stock market gains. We put the question to an expert.
Professor Jon Danielsson, Director of the Systemic Risk Centre at the London School of Economics, says he is "fairly certain" the market is at the top of an AI bubble, whose current levels of growth and investment cannot be sustained. "The real question is if it's only stock market investors, then those investors will of course suffer significant losses (...) But the bigger threat to societies is if it's financed by borrowing money – which is increasingly the case – and especially if banks are providing the money. So what happens is if some of these investments sour, which I think is clearly likely, and if banks end up suffering significant losses, that itself can threaten the stability of the financial system."
He believes comparisons to the dot-com bubble of the late 1990s are well-founded. "Every technology bubble we have seen over the past 150 years is similar. We saw the telegraphs, electricity, the internet, telephones, railroads – they all meant that a large number of investors piled into this technology. The benefit to society was significant (...) but by far most of these investors lost everything, and only a handful ended up being winners. I see many parallels with the AI bubble today."
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When it comes to the technology itself, Danielsson says his biggest concern is "how the private sector is rapidly rolling out AI and spending lots of money developing and using the technology, while the public sector is far behind. I've been following this space for a long time, and I've never seen as much difference between the capabilities of the public and private sectors."
Danielsson admits: "I use AI very extensively. I don't know how I did my work before AI happened!" He says that despite some concerns, the technology is rapidly becoming inescapable. "I suspect all of us will end up being very big users of AI going forward, and those who resist or don't want to use AI might find themselves on the wrong side of their careers, if not history."
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