AI boom? Or AI bust? Are even the broligarchs admitting AI is a bubble?

On Monday, Peter Thiel, the founder of Palantir, the Silicon Valley data surveillance company (that also has its hands on our NHS data), dumped his entire holding in Nvidia, the AI chip manufacturer. 

If neither of those names mean much to you, or why anyone should care, let me spell it out: Thiel is the closest thing the modern world has to a real-life Bond villain. Nvidia is the most highly-valued company on the planet. And Thiel dumping $100m worth of its stock is a flashing red warning light. 

Because Nvidia sits at the very centre of the entire AI boom. Or,  as some people are calling it, a bubble.  A bubble that - should it burst - could upend the entire US economy. 

And Thiel’s shock sale of his entire holding is the strongest signal yet that Silicon Valley not only knows that this is a bubble, it’s starting to feel spooked. 

This is not just any bubble. Welcome to the Great AI Bubble, a metastasized trillion-dollar tech tumour so massive it’s practically visible from space.

If you haven’t heard of this yet, it’s not because you're not paying attention. It’s because the media is part of the same mystical amalgam of bullshit and vibes that’s keeping the whole thing afloat, a circular economy of access journalism and tech hyperbole that masks something stinking and rotten at its core: OpenAI. 

Some 18 months or so ago, I went for lunch with my friend Roger McNamee, a celebrated Silicon Valley venture capitalist turned radicalised burn-the-whole-thing-down tech justice warrior, and I listened to him commit casual tech blasphemy. At the time, the headlines were dominated – as they largely still are – by article after article claiming that generative AI is a technology that will revolutionise the very fabric of humanity. Or maybe kill us. Or maybe both. But then, these are two sides of the very same coin.

Roger, however, wasn’t buying it. In his view, generative AI was just yet another Silicon Valley hype cycle. Another crypto. Another Metaverse. Another Web3. Another bro-tastic sales pitch attracting unprecedented amounts of capital that couldn’t ever possibly earn a return; a narrative that was being inflated with a quasi-religious zeal by the usual suspects in league with a gullible and complicit media.

Roger was the first person I heard say these things, but far from the last. This spring I met and began talking to AI scientist Gary Marcus, another trenchant observer of the tech industry, whose views on generative AI generally and OpenAI specifically have gradually been gathering attention. To crassly sum up his views: the emperor has no clothes.

And, then five weeks ago, there was what felt like a species leap. I’ve watched as these views have gone from niche lone voices on the periphery to headlines in the business press and finally (this week) to the mainstream, when Google’s boss, Sundar Pichai,  told the BBC’s Today progamme that the trillion-dollar AI investment boom had ”elements of irrationality”. 

What’s been fascinating is how the idea gained currency across social media largely due to one piece of brilliant data journalism. This graphic, published by Bloomberg, gave the story a single, impossible-to-forget image. It transformed the impenetrability of global economics into something that is immediately both visible and understandable. Because if you want to know what a bubble looks like, it’s this:

The graphic isn’t properly credited so I can’t give the right person their due, but the accompanying article – “OpenAI, Nvidia Fuel $1 Trillion AI Market With Web of Circular Deals” –  is by Emily Forgash and Agnee Ghosh, and what it does is instantly illuminate a circular economy of loans and debts and froth and hype – all entirely dependent upon one another. This emperor has $1tn and not a stitch to wear.

What we’re seeing is a closed doom loop underpinned by … well, what exactly? The promise of a world-changing technology that, guess what, isn’t here yet and there’s no real sign that it ever will be. These companies are stealing every scrap of data they can find, throwing computing power at it, draining our aquifers of water and our national grids of electricity and all we have so far is some software that you can’t trust not to make things up.

One thing that’s enormously helpful in terms of getting to grips with this story is the ever-unreliable Sam Altman, boss of OpenAI, whose performance this week is best summed up here:

Altman gave a car crash of an interview that you might as well watch now because it’s going to end up in a Netflix documentary at some point in the not too distant future.

This was not a hard interview – it was a bro-to-bro podcast – but Altman had a meltdown. In response to a question about how a company will be able to spend $1.4tn when its revenue is only a tiny fraction of that, Altman throws a hissy fit: “If you want to sell your shares,” he tells the interviewer, “I’ll find you a buyer. Enough.”

It’s generally not a good idea for CEOs to tell their customers to sell their stock, though it is how fraudsters tend to talk. If you don’t want to claim the million dollars I have for you in a Nigerian prince’s bank account, that’s up to you, but you’re the one who’s going to miss out.

I asked McNamee to explain what is going on and he responded as follows:

“The bubble around LLMs and AI is really something to behold. I’ve been in the investment business since 1982 and I have never seen anything remotely like it.”

He points out that more money has been invested in technology since 2022 – the aforesaid trillion dollars – than he believes has been invested in technology ever, which leads him to conclude:

“It’s almost inconceivable that the trillion dollars will provide a reasonable rate of return, and so it does seem that it’s only a matter of time until this whole thing blows up. Now, I think the game that these guys are playing is different than the traditional one that you see on Wall Street. I think they know they’re in a bubble, and I don’t think they care.”

I asked Gary Marcus the same question. He’s made a series of predictions about OpenAI that have, so far, turned out to be correct, and believes that the current model of throwing shedloads of data at the wall is vanishingly unlikely to ever lead to AGI, or “artificial general intelligence” – the dream of a machine that can reason as well or better than a human.

Is generative AI a bubble, I asked him. And if so, is it going to burst? “I keep thinking of Wile E Coyote at the edge of a cliff in the Road Runner cartoons,” he said. “And he doesn’t fall until he looks down. The question is: when are people going to look down? The finances don’t make any sense, and I think they’re starting to look down.”

I’ve had vivid flashbacks this week to the last tech bubble. I had a front-row seat to the dotcom boom as a cub reporter at the Daily Telegraph and have vivid memories of both its peak and crash. In the UK, the peak of the peak was the day the travel startup Lastminute.com went public, and the entire country was swept up in the hype, as was my own newsroom. As the paper pumped out stories about how oversubscribed the share offer was, how revolutionary the technology, how high the valuation, I watched several journalists spend their lunch hour desperately trying to buy shares.

Weeks later, the share price tanked as the entire dotcom boom collapsed. The media hadn’t just fallen for the bubble. It was the bubble. And that’s what I’ve been thinking about this week: the difference between then and now, and how back at the turn of the millennium, there was no other source of news and information.

Back to this fast- moving week in the world of AI. 

This is the change in Peter Thiel’s shareholdings that was revealed on Monday. Second from the bottom you’ll see “NVDA”. That’s Nvidia, and the words next to it: “sold all”.

Or, as Investing.com put it, he’s dumped the stock owing to “bubble fears”. It calculates the sale at roughly $100m. And Thiel didn’t stop there: he also slashed his holding in Elon Musk’s Tesla and liquidated his shares in energy company Vistra.

Thiel, a keen chess player who prides himself on his ability to think 12 steps ahead, seems to believe there’s a bloodbath coming. If it is a bloodbath, then it is one that Thiel, an early investor in OpenAI, helped create – and one from which he will now, in some way or another, be looking both to profit from and control.

This October, Nvidia became the world’s first $5tn company. But it was also the world’s first $4tn company, a landmark it reached just a few months earlier in July this year. And that’s just two years after it hit what was then considered a huge milestone: $1tn.

This isn’t so much “growth” as cancer. There’s nothing healthy about a share price that looks like a late-stage diagnosis. Nvidia is at the centre of a game of musical chairs that is holding up most of the US stock market. 

The fact that it’s Nvidia and Thiel is what makes this such a toxic combo. Peter Thiel is the ur-broligarch. He cultivates a quasi-Bond-villain persona and has an actual Bond villain’s lair in New Zealand that he bought in case things get bumpy, which if the global economy were to collapse, would be one description for it. Thiel’s surveillance company, Palantir, a military contractor to the US and Israeli governments among many others, is not just an intrusive and creepy data harvester, it’s a human rights black hole.

Thiel’s ultimate goal is shadowy. But destroying and then re-making society from the ruins is certainly up there. He recently gave a series of lectures centred on his belief that the Antichrist is coming and there will be an apocalyptic endgame between good and evil. That’s not some sort of tortured metaphor, by the way. He means the actual Antichrist, who he thinks may or may not be Greta Thunberg.

In a recent New York Times interview with Ross Douthat, there was an amazing moment where Thiel couldn’t definitively say that he wanted humanity to survive:

Douthat: “You would prefer the human race to endure, right?”

Thiel: “Uh …”

Douthat: “You’re hesitating.”

Thiel: “Yes. I don’t know. I would …”

Douthat: “This is a long hesitation.”

Thiel: “There’s so many questions implicit in that.”

Douthat: “You would prefer the human race to survive?”

Thiel: “Yes. But I would also like us to radically solve these problems.”

These are dangerous people. Breaking society in order to re-make it is a Thielian dream. And a global financial crash would certainly be one way to accelerate that concept. Could he actually be trying to start a run on the market?

It’s not a coincidence that the first person I’ve seen post on this, outside of a small circle of tech sceptics, tech investors and a few business reporters, is the writer Naomi Klein.

Klein wrote an entire book called The Shock Doctrine which detailed how all capitalism is “disaster capitalism”, an economic system that exploits global shocks and human misery to accrue ever greater wealth and power for the few. And this is what she posted this morning:

If Thiel is aware of Klein’s Shock Doctrine, he probably views it as a handbook.

And what Klein is referring to here is that we know what happens when reckless out-of-control investors fuck things up: they get bailed out. They don’t get held to account. They don’t lose their shirts. It’s the little people – us – who pay the price for years. In Britain, an estimated 335,000 additional deaths can be attributed to the policy of “austerity” that followed the financial crisis. (And the man who oversaw that policy is now gunning for the top job at HSBC bank. Because of course he is.)

And Klein is specifically referencing here a suggestion floated last week by OpenAI that it might need some sort of “guarantee” from the US government, aka a bailout.

Roger McNamee, whom I spoke to last week, is a Silicon Valley VC who was one of the earliest investors in Facebook and was a mentor to Mark Zuckerberg. He also told me: 

“The CFO of OpenAI, Sarah Friar, gave the game away a week ago when she said that she was thinking that there was a role for the government to play in backstopping the future investments of companies like OpenAI. That is a terrible idea …

“You know, everybody on Wall Street is excited about this bubble. 34% of the market value is in the big companies. The private ones have notional values that would make them, you know, Fortune 200 companies.

“The whole thing is crazy, but it can keep going on because, you know, there’s just no way to tell when a bubble is going to end. When it does, though, it’s going to end with, I think, a bang. And I believe that the government will probably try to bail these guys out, which would be a terrible idea, but politically, I think that’s where things are right now.”

This is an edited version of two recent posts on Carole Cadwalladr’s How to Survive the Broligarchy