Sometimes I wonder who the rational individuals at the other end of these deals are and what makes them so confident. I always assume they have something that general public cannot deduce from public statements

If the whole market goes to bet at the roulette, you go bet as well.

Best case scenario you win. Worst case scenario you’re no worse off than anyone else.

From that perspective I think it makes sense.

The issue is that investment is still chasing the oversized returns of the startup economy during ZIRP, all while the real world is coasting off what’s been built already.

There will be one day where all the real stuff starts crumbling at which point it will become rational to invest in real-world things again instead of speculation.

(writing this while playing at the roulette in a casino. Best case I get the entertainment value of winning and some money on the side, worst case my initial bet wouldn’t make a difference in my life at all. Investors are the same, but they’re playing with billions instead of hundreds)

This looks like the classic VC model:

1. Most AI ventures will fail

2. The ones that succeed will be incredibly large. Larger than anything we've seen before

3. No investor wants to be the schmuck who didn't bet on the winners, so they bet on everything.

There isn't necessarily rationality behind venture deals; its just a numbers game combined with the rising tide of the sector. These firms are not Berkshire. If the tide stops rising, some of the companies they invested in might actually be ok, but the venture boat sinks; the math of throwing millions at everyone hoping for one to 200x on exit does not work if the rising tide stops.

They'll say things like "we invest in people", which is true to some degree, being able to read people is roughly the only skill VCs actually need. You could probably put Sam Altman in any company on the planet and he'd grow the crap out of that company. But A16z would not give him ten billion to go grow Pepsi. This is the revealed preference intrinsic to venture; they'll say its about the people, but their choices are utterly predominated by the sector, because the sector is the predominate driver of the multiples.

"Not investing" is not an option for capital firms. Their limited partners gave them money and expect super-market returns. To those ends, there is no rationality to be found; there's just doing the best you can of a bad market. AI infrastructure investments have represented like half of all US GDP growth this year.

"Rational [citation needed] individuals at the other end of these deals"

Your assumption is questionable. This is the biggest FOMO party in history.