Reasons to Hope the AI Bubble Pops

By 2030, tech companies will invest nearly $7 trillion into artificial intelligence.

This is the fastest capital deployment ever aimed at one technology, and if it also represents a bubble that eventually bursts... Well, legendary investor Howard Marks believes that would be just fine.

Such a deflated AI investment bubble could still lead to a stable and profitable future in which AI is both cheaper and more widespread.

Marks explains that past technology investment bubbles typically funded the "installation phase" of a new technology. Think of the investment boom in railroads that funded the creation of cross-continental networks of tracks, which then transformed the United States's economy.

When a bubble based on technological progress pops, that newly installed infrastructure (data centers or train tracks, depending on your century) suddenly becomes more affordable.

Bubbles helpfully excite investors into pouring money in to jump-start a new technology. Many of those investors lose their money, but the result is still a net benefit to society.

Here are his words:

In the cases of the Industrial Revolution, railways, electricity, and the automobile, the bubbles were not regrettable, but necessary.

The speculative mania enabled the “Installation Phase,” where necessary but not necessarily financially wise investments laid the groundwork for the “Deployment Period.”

— Howard Marks

When it comes to the current AI expansion, Marks points out that a bust in the current data center construction boom would enable a new generation of owners to buy up foreclosed data centers at pennies on the dollar.

These buyers would reap profits when the industry stabilizes.

So, an AI debt bust would wipe out the current investors but could also eventually leave us with a profitable industry and abundant infrastructure. That could be good for almost all of us.

The trick for us investors is to make sure we don't lose our shirts giving birth to the AI age.

Read all of my stories about Howard Marks on My Daily Oracle.

And, if you want a deeper dive, get a copy of The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor. It combines Marks's writing with counterpoints from four other renowned investors, including Joel Greenblatt of Gotham Capital.

We'll learn about AI from Marks every day this week. Tomorrow, he teaches us how to spot a bubble.

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making any investment decisions. Links on this page may be affiliate links, meaning your purchases help support this newsletter. Quotes may be edited slightly for clarity. Images represent our best effort. Copyright © 2025 mydailyoracle.com. All rights reserved.