Plain English with Derek Thompson Plain English BEST OF: This Is How the AI Bubble Could Burst
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Jan 27, 2026 Paul Kedrosky, investor and writer known for VC work and tech-economics analysis. He explains why AI data-center CapEx could form a historic bubble. He breaks down GPU-driven costs, short asset lifespans, opaque SPV financing, and grid and private-credit risks. He flags warning signs and sketches how AI could still yield practical, revenue-generating uses.
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Market Rewards Unsustainable CapEx
- Markets currently reward hyperscalers for huge AI CapEx even when it makes little economic sense to spend that much.
- Companies then try to present the spending as less risky by emphasizing the long-lived 'shell' instead of short-lived GPUs.
AI Diverts Capital From Manufacturing
- Massive AI capital flows create a 'sucking sound' that diverts investment away from small manufacturing and other sectors.
- That diversion raises the cost of capital for manufacturers and can hinder onshoring efforts.
Power Demand Fuels Local Backlash
- Data centers are bidding for electricity and can push up local energy prices, creating consumer and political tensions.
- Communities are starting NIMBY pushback and some construction will offshore as a result.