Even if the American action ends imminently, we’re likely to see a significant energy price spike that might take months to fully play itself out. A thought that I’ve been plagued by in the last few days is what this means for the AI bubble? Until the new hype wave about coding agents began to emerge in January, we saw investors increasingly twitchy about what everyone agrees is a massive bubble in AI investment. If there’s a sustained energy price spike it has a significant impact on the economics of AI labs which are already strikingly lacking in commercially viable products:
- There’s an indirect relationship between the cost of energy and the cost of compute. While data centres tend to be locked into long term contracts which insulate them from short-term price fluctuations, we’re looking at a crisis with the potential to nonetheless exercise an impact on the cost of operating data centres.
- The data centre build out is a huge material infrastructure project unfolding globally. The scale of the ambition is a crucial part of sustaining investor confidence the labs are building to a brave new future. The build out is much more susceptible to the energy shock because it’s a complex building project across a range of locales. The cost of these operations could be increased substantially.
- The political fallout over OpenAI swooping in to take Anthropic’s place in the Pentagon war machine has the potential to significantly amplify existing anti-AI sentiment. If ChatGPT sees a significant fall in user subscriptions there’s a real possibility that trust in an already questionable commercial strategy could collapse.
It’s not so much that the costs themselves would prove catastrophic but that challenges across the three vectors tips investors into a crisis of confidence in AI labs as a whole. Furthermore, if investors start seeking safer homes for capital in the expectations of escalating instability, AI investment could rapidly start to lose the attractiveness it is still just about sustaining.
If the AI bubble bursts there’s a real possibility it takes the American economy down with it, which will likely tank the world economy in the process. If there’s a sustained energy crisis (i.e. if the Iran action escalates) then a 1970s global economic crisis becomes entirely plausible. The domestic politics in the US become fiendishly complex under these circumstances (e.g. could Trump’s administration bail out OpenAI given its national economic and geopolitical significance?) with even more complex dynamics facing the international order.
Mark Carrigan 