New work confirms our own ongoing analyses, that the current AI capex exceeds all prior ones. In terms of the pre-boom spending vs peak spending, inflation-adjusted, the current event is now larger than canal mania, railway mania, the roaring 20s, and the dotcom boom, according to the Bank for International Settlements. And, at least as importantly in terms of the risk capital impulse, this event occurred in about half the time of its predecessors, all of which led to sometimes serial busts.
Some implications:
- AI capacity is being built well ahead of economically justified demand.
- The BIS model implies investment around 1.5 times the efficient level, and potentially 3x where demand is inelastic
- This almost guarantees low utilization, weaker pricing and stranded assets.