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The massive investments in current artificial intelligence infrastructure will likely count as the largest and fastest deployment of general-purpose technology in history.
This year and next year, Google, Amazon, Microsoft and Meta alone will spend an astounding $750 billion on data centers to deliver the power of AI models. MorganStanley will reach 3tn total global spending in the region by 2029. History suggests that they are right to be nervous.
Few scholars have better positioned AI in a historical perspective than Carlota Perez: The Dynamics of Bubbles and Golden Ages, author of technological revolution and financial capital. In her book, Perez identifies five great technological revolutions. The Industrial Revolution of the late 18th century. Steam, coal and railroad revolution of the 1830s. The steel revolution of the 1870s. Mass production age in the early 20th century. And then there was an information technology revolution that began in the 1970s. Perez sees AI as an extension of its fifth technological revolution.
She also argues that these revolutions follow a rather predictable cycle. In the early installation stages, there is a lot of creative destruction and social disruption as industries and regions are overthrown. That usually comes with overinvestment, financial enthusiasts and stock market bubbles.
Nevertheless, these bubbles are often productive, and as railways and electrical grids are built, they fund the construction of critical infrastructures that allow for the subsequent mass deployment of technology, achieving their wider economic benefits. As for AI, it remains in the man disease installation stage.
That point was strengthened by a report from the Massachusetts Institute of Technology that volatile stock market investors this week. Researchers found that 95% of the companies surveyed had zero returns from investments in generated AI. Openai CEO Sam Altman was barely relieved when asked if there was an AI bubble. “I think some investors are likely to lose a lot of money,” he replied.
So it appears that a bone judering crash or some crash is more likely before reaching the golden age of AI. “I’ve never seen a golden age happen without crashes,” Perez tells me.
Even more hilariously, she added that the bursting of the AI bubble could lead to even greater upheavals as the capital markets are misfiring. They now focus on speculative games such as crypto over productive investments, with global debt focusing on GDP of more than three times as much. “This can also trigger huge instability,” she says.
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But it’s worth investor considering how this technological revolution differs from the previous cycle. Certainly, it is the first revolution driven by software as much as hardware. As large-scale network effects occur, it changes some financial dynamics. Software companies can scale up faster and move globally overnight.
Openai’s ChatGPT is used by 700 million people every week within three years of release. However, as digital globalization increases opportunities, risk increases. See how China’s cheap Deepseek AI model rattles US tech stock investors.
Perhaps the most interesting difference is how much AI companies today themselves benefit from the economic benefits that help them unlock. This technology is accelerating advances in many fields, including biotechnology, robotics, and materials science, for example. AI companies can take advantage of their technical advantages to become key healthcare, drug discovery, or autonomous automobile companies. To what extent can they transform into a general purpose company and capture the achievements of the golden age?
But another important lesson should be drawn from the previous revolution, Perez adds. To enter the golden age, civil society must shape the revolution into its own purpose. So, for example, previous politicians have set up antitrust agencies to tame past businesses, and created welfare states to alleviate disruption in the labour market.
Perez argues that today’s dysfunctional financial markets, concentration of corporate power, surges in populism and the threat of climate change have led the world to a new turning point. How we should respond is the subject of her next book.
However, as historian AJP Taylor once wrote about the 1848 revolution in Europe, countries sometimes reach a turning point and fail to rotate.
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