Here's How The AI Bubble Bursts — With Paul Kedrosky

**Alex Kantrowitz** (0:00)
If we are in an AI bubble, what could an unravelling look like? Let's talk about it with investor and analyst, Paul Kedrosky, right after this.

**Paul Kedrosky** (0:08)
Introducing Meta Glasses.

**Alex Kantrowitz** (0:11)
You have questions, they've got answers.

**Paul Kedrosky** (0:14)
Hey Meta, what's the capital of Peru? Lima.

**Alex Kantrowitz** (0:17)
How do you say, where's the restroom in Spanish? Donde esta el baño?
Hey Meta, is a hot dog a sandwich? Technically no, spiritually, yes. Hey Meta, what should I do with my life? That's one of life's biggest questions.

**Paul Kedrosky** (0:33)
What do you think? Ask anything with the new Meta Glasses.

**Alex Kantrowitz** (0:38)
Hey, I just Venmo'd you for rent.

**Paul Kedrosky** (0:40)
Nice. Now I can instantly spend it whether I'm checking out online with Venmo or using the Venmo debit card. Say more.

**Alex Kantrowitz** (0:47)
More exactly.

**Paul Kedrosky** (0:48)
Because the more you do with Venmo, the more you get, like earning up to five percent cash back with Venmo stashed on a bundle of brands.

**Alex Kantrowitz** (0:54)
So order more pizza. The math demands it. Get the Venmo debit card.

**Paul Kedrosky** (0:59)
Venmo stashed bundle terms and exclusions apply. See terms at Venmo.me slash stashed terms. Venmo checkout not available at all merchants. Venmo MasterCard is issued by the Bancorp Bank NA.

**Alex Kantrowitz** (1:08)
Welcome to Big Technology Podcast, a show for cool-headed and nuanced conversation of the tech world and beyond. We have a great show for you today. You're going to tackle what I think is the strongest argument that all this AI investment is going to lead to a collapse because our guest today, Paul Kedrosky, thinks that we are in the midst of an AI bubble. He has been making the case far and wide and has not backed off despite the fact that this technology has gotten much better over time.
So this will be a really fun discussion to ask basically, even if everything goes right, are the economics on the downside going to be so bad that it will still fall apart? So Paul, it's great to have you on the show.

**Paul Kedrosky** (1:48)
Welcome. Sure. Great to be here.

**Alex Kantrowitz** (1:51)
All right. Let's just start with the spending and the return necessary to make that investment pay off. Right? If we're in an AI bubble, as you argue, there's gonna have to be some level of overspend and then an inability to make those returns materialize. So first off, can you just talk about the magnitude of spending going into the AI buildout today and how that compares to maybe previous infrastructure buildouts in the rest of our economy right now?

**Paul Kedrosky** (2:22)
Sure. I mean, there's a thousand ways to kind of put it in context for people. But one of the ways I try to do it is to compare it to, as you say, prior infrastructure buildout. So you can go back to the 19th century and canals and railroads, or you come forward to the late 19th century and early 20th and talk about electrification and rural electrification or the interstates.
World War II re-arminant, the fiber optic buildout. These are all these moments in Western economic history, in particular US economic history, where we had these massive infrastructure investment that in some ways, not obviously the analogies are never perfect, but in some ways are analogies to what's happening today. So one way to think about the sizes of each of these moments is to think about their contribution to GDP, you can think about them in terms of their contribution to GDP growth, you can think about them in terms of their contribution to non-residential fixed investment, there's lots of ways to back into this, so you can provide some context. It doesn't really matter anymore which one of those you use, we're the winners. So we're now currently larger than everything except for, and this was an unfortunate analogy I made recently on a German interview, as I said, we're now larger than everything except for World War II, re-arming it, which doesn't play as well in Germany as it does everywhere else. But nevertheless, the point being that as a percentage of GDP, as a percentage of non-residential fixed investment, as I've documented for like the last year or so, in terms of its contribution to GDP growth, in all of those metrics, we've now exceeded all of the largest capital expenditure paroxysms, impulses in Western economic history. And again, you can say to yourself, well, so what or anything else? But that's sort of a separate question. So the point to start off with is this is a really, really unusual moment in terms of the scale of capital expenditure normalized against all of these other capex moments. And then we can get into whether or not any of those analogies matter, or whether this time is different, the favorite sort of responses to these kinds of things, or all sorts of other stuff. But the point is we've now reached that moment. And it's now, in lots of other measures, it's now the largest tech is now the largest piece of the high-yield bond market. It's now the largest piece outside of financial services of the investment-grade bond market. So in terms of new issuance, tech companies themselves are now at a point where for the last two years, people repeatedly told me that it really didn't matter because they were doing it out of cash flows. And so it would only become worrisome if this was becoming out of debt. Well, guess what? As of the second quarter of 2026, this is now more than 50 percent of the funding for data centers is external financing, which is obviously the term of art for off balance sheet and out of your own cash flows. And now, of course, the same people who were saying that a year ago were saying that that would matter is now saying, well, that's perfectly fine now. So, you know, by any of these metrics, GDP, non-residential fixed investment, percentage of GDP, percentage of GDP growth, off balance sheet financing, we're now at a point where this is a remarkable historical moment full stop.