AI Is Too Big to Fail

Summary

TL;DR AI capital flows outrun near-term revenue, yet investors frame the risk as a national security mandate. Silicon Valley power brokers are aligned with federal leadership, ensuring backstops for key firms. China's energy base and robotics lead mean the U.S. must sprint just to avoid falling behind. You've probably been hearing that we're in an AI bubble. I think that's both loaded and reductive, and I'd like to take some time to help people understand the nuances of the situation we're currently in, because it's deep. To be clear, I am pro AI as a technology and I have an economic interest in its success (and for reasons I'll discuss, so should you), however there is a lot more going on that I don't agree with that I'd like to raise awareness of. Bubble Talk Misses the Scale of the Bet AI capital investments are running far ahead of expected returns, and the pace of investment is accelerating. Analysts estimate AI-linked activity drove roughly 40–90% of H1-2025 U.S. GDP growth and ~75–80% of S&P 500 gains. If it wasn't for AI investments, it's likely the United States would be in a recession right now. According to Harris Kupperman of Praetorian Capital “the industry probably needs a revenue range that is closer to the $320 billion to $480 billion range, just to break even on the capex to be spent this year.” It sure sounds like a bubble, however thinking of it as just another bubble would be doing a disservice to the magnitude of the dynamics at play here. To understand why, we have to explore the psychology of the investors involved and the power circles they're operating in. Political Alignment Is Warping Market Discipline The elites of Silicon Valley have cozied up to Donald Trump in a way that's unprecedented in the history of modern democracy. They've lined the pockets of his presidential library foundation, supported his white house renovations, paid for his inauguration and provided a financial lifeline for the Republican party. Between Elon Musk, David ...