Premium: What If...We're In An AI Bubble? (Part 2)

2026-05-22 · Source: Ed Zitron's Where's Your Ed At · Field: Finance & Economics — Capital Markets & Investment Management, Economic Analysis & Policy, Entrepreneurship & Start-ups · Depth: Intermediate, medium

Summary

The article argues that the AI industry might be in a bubble, detailing a cascade of financial and operational issues if data center construction slows. This includes OpenAI and Anthropic facing expansion limits, hyperscalers failing to meet revenue promises, and \$178.5 billion in US data center debt from 2025 going unpaid. The author contends that the "insatiable" demand for AI compute is an illusion, primarily driven by Anthropic and OpenAI, who collectively need to make or raise \$1.25 trillion in four years for their commitments. Remaining Performance Obligations (RPOs) for other clients have plateaued, and NVIDIA's practice of buying back surplus compute indicates a lack of genuine, distributed demand. Furthermore, data centers are being funded by private credit and venture capital with weak due diligence, despite being massive money-losing operations, suggesting a reliance on others to solve fundamental profitability issues.

Key takeaway

For investors evaluating AI companies, recognize that current valuations may be inflated by concentrated demand and speculative financing. Scrutinize the actual, distributed demand beyond major players like OpenAI and Anthropic, and assess the long-term profitability of compute infrastructure. Your due diligence should focus on verifiable revenue streams and realistic infrastructure buildout timelines, rather than relying on projected "insatiable" demand or the hope that profitability issues will resolve themselves.

Key insights

The AI industry's financial structure relies on unsustainable growth, concentrated demand, and weak due diligence, signaling a potential bubble.

Principles

• Concentrated demand creates market illusions.
• Delayed infrastructure impacts entire supply chains.
• Weak due diligence fuels speculative investments.

Topics

• AI Bubble
• Data Center Economics
• GPU Supply Chain
• Venture Capital Funding
• Hyperscaler Revenue
• Private Credit Risk

Best for: CTO, VP of Engineering/Data, Entrepreneur, Investor, Executive, Director of AI/ML

Related on AIssential

• Premium: What If...We're In An AI Bubble? (Part 1) — The current AI market exhibits bubble characteristics, driven by speculative claims, unsustainable economics, and a disconnect from reality.
• Premium: The AI Compute Demand Story Is A Lie — The "AI compute demand" narrative is largely an illusion created by hyperscaler subsidies to a few key AI companies.
• The bubble is slowly popping, investment isn't able to keep up — The AI market faces a critical debate regarding its investment sustainability and the long-term viability of current pricing models.
• Does OpenAI’s new financing make sense? — OpenAI's $80 billion valuation is questioned due to unprofitability, high costs, and lack of a technical moat.
• The OpenAI Bubble Increases in 2026 — The AI market is experiencing an unsustainable capital allocation boom, with OpenAI facing significant competitive pressures despite high valuations.
• Sam Altman’s OpenAI Empire Cracks — $200B Needed to Survive 2030 — OpenAI faces significant financial strain, requiring vast capital while its ecosystem shoulders substantial debt and profitability remains uncertain.

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Editorial summary, takeaway, and curation by AIssential. Original article published by Ed Zitron's Where's Your Ed At.