> In an uncontrolled scenario the AI bubble bursts and takes the whole economy with it.

How is the whole economy exposed to AI? Will Anthropic or SpaceX cratering threaten the entire financial system? NVDA will certainly correct, which is probably the biggest risk to the market, but then what? All the FCF being spent by Google, Amazon, MS, Meta, etc... will suddenly start flowing to dividends and stock buybacks again. It's not like their core business is selling AI. Apple will be able to get cheap RAM/chips again while also keeping their recently increased prices.

I could see an argument that the economy is currently being propped up by the hope of AI productivity gains, but that seems spurious.

EDIT

A comment above mentioned oil, and thus the inflation coming with prolonged high prices. That's way more of a concern than anything happening in AI.

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ldoughty 3 hours ago | parent | next [-]

> How is the whole economy exposed to AI?

Out of fear/ uncertainty, investors don't just pull out of AI, but the stock market in general.

More money shifts to bonds/commodities, not just people selling AI, but Coca-Cola and Johnson and Johnson, etc.

Of course, the impact would not be equally distributed, staple stocks will crash less, but there will probably be overall a huge pull out as people panic shift assets.

The resulting downturn likely means a crashing job market (temporarily) as government says "there's no way we could have known" and slowly try to stem the bleeding... Meanwhile unemployment shoots up in any industry that needs consumers (retail, food services, etc., but less so healthcare, government), and companies are nervous to hire on a shaky economy (see: early COVID).

The energy shock will also say inflation should go up, but the crash would want to decrease inflation... Companies will likely have to eat costs to keep prices low to sell inventory that cost them more to acquire.

It's all one big economy.

Note: this is all big hand wavey speculating. The moment things start to turn south there numerous things governments can do to help (e.g. handouts, reduce interest, open oil reserves, etc) so what ultimately does happen is anyone's guess. This is just one scenario based on the fact the current US government prefers uncertainty in the market, e.g. we've had peace with Iran ~8 times according to the USA, but Iran claims some of those statements are false. The straight had been reopened ~5 times, but Iran disagrees there to. Seems like the _goal_ is uncertainty

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cicko 2 hours ago | parent [-]

Who cares if "investors" are getting out of the market? They are not literally pulling money out of those companies but out of a casino that is the stock market.

One good thing in all this is, at least, if the AI stocks collapse that should not result in large-scale lay-offs. :) Quite the contrary.

	▲	ldoughty 22 minutes ago \| parent [-]
		That's a very narrow view... The people in charge of companies usually have large amounts of stock in their companies... And often bonuses tied to metrics that often includes stock. If their share price drops 50%, that's a personal "net worth" and/or "salary" loss which, unlike most people, they have bounce-back control. "We need to trim the workforce", "improve margins", "show we are still a solid company" The above doesn't just happen in AI/Tech stocks, it happens EVERYWHERE... Small business owners see their retirement portfolio hurt, they can't fix those companies, but they might reevaluate what they do in the next 2-3 years so they can get their retirement back on track... How do they increase profits while lowing costs? Try to cut staff/hours, find (perhaps foreign?) cheaper suppliers. I think AI stock bubble bursting won't result in large scale layoffs, I think it will result in large-scale _trimming_ across the economy, which is almost worse. AI will be expected to fill in the gaps to increase productivity for less than the cost of an employee, which means slower rehiring .. AI will rebound at a "more correct" evaluation. And hiring will slowly pick up as companies see they still need people to produce. Viewing the stock market as purely a casino -- the executives are the house at various casinos... and the house likes to win at the expense of the players (anyone not a casino)

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cmiles8 3 hours ago | parent | prev | next [-]

All that AI capital investment is flowing down into construction, utilities, raw materials and many other industries that on the surface appear unrelated to AI.

That’s currently all being kept alive by artificial cash flow broadly funded with loans and VC investment. When that hiccups the blast radius is much much bigger than a few AI companies just folding.

	▲	rubyfan 3 hours ago \| parent [-]
		I think the market is discounting some of the AI driven growth or maybe pricing in the likelihood of a correction. Look at some of the blow out earnings recently where the market shrugs it off. To your point, many non-AI companies are now driven by AI spend that seems unlikely to be durable. I’m not a pro here but to me it would seem like an AI crash would hit certain companies really hard (SpaceX, Oracle, NVDA, etc), most other might take a small correction to reset AI driven gains, and potentially some deflation. If the AI game ends then suddenly there is a return to free cash flow from hyperscalers, some goods and utilities cost less and a lot of investment dollars need a place to eventually go. You could see a scenario where the overall market keeps chugging and the AI crash ends up being a rotation.

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actionfromafar 3 hours ago | parent | prev [-]

The same people pull the oil strings, crypto strings and AI strings. The whole economy suffering part intensifies when the "gubmint" bails its best friends out when the music stops.