AI's Trillion-Dollar Gamble: Boom, Bubble, or Ethical Crossroads?

By: NICHOLAS GENTILE, CFA, SENIOR VICE PRESIDENT AND CO-HEAD OF FIXED INCOME

A common theme during our client meetings this year has been Artificial Intelligence (“AI”) and its impact on markets and the economy at large. It’s not a secret that the AI revolution is the driving narrative behind market performance for the past few years. The results have been dramatic, creating trillions in new wealth. Recently, the prevailing narrative has shifted from the transformative potential of AI technology in daily life to just the sheer amount of capital expenditures that are necessary to make that dream a reality.

The investment to build out data center capacity is staggering. UBS estimates that companies will spend $375 billion on AI infrastructure globally in 2025, which will increase to $500 billion in 2026. The longer-term projections are even more dramatic; Brookfield Asset Management estimates that AI infrastructure spending will exceed $7 trillion dollars over the next decade[1]. This has been a boon not only for conventional technology companies but also for purveyors of power, water, HVAC, and other construction services. Additionally, private equity and private credit providers are racing to fund these ambitious projects, easily sourcing investor capital to deploy.

While one would normally expect these spending plans to be underpinned by some return-on-investment analysis, there is a sense that the AI boom is different. Leaders in Silicon Valley seem willing to spend as much money as necessary to be the first to achieve artificial general intelligence – or even artificial superintelligence. OpenAI CEO Sam Altman recently said, “You should expect OpenAI to spend trillions of dollars” on data center construction in the “not very distant future.” He added, “And you should expect a bunch of economists to wring their hands and say, ‘This is so crazy, it’s so reckless, and whatever. And we’ll just be like, “You know what? Let us do our thing.'” In a recent podcast interview, Facebook CEO Mark Zuckerberg said,

"If we end up misspending a couple of hundred billion dollars, I think that that is going to be very unfortunate obviously. But what I’d say is I actually think the risk is higher on the other side. If you build too slowly and then super intelligence is possible in three years, but you built it out assuming it would be there in five years, then you’re just out of position on what I think is going to be the most important technology that enables the most new products and innovation and value creation and history."

Generative AI, while helpful in many use cases, has not yet created the economic benefits that would justify these spending and investment plans. A recent MIT study[1] uncovered that 95% of companies are getting zero return from their investment in AI. This despite 374 of the S&P 500 companies mentioning AI on earnings calls in the past 12 months with 87% of these calls described the tech positively.[2] Apollo reported that US Census Bureau surveys are showing a decline in AI adoption by large firms over the past several months.[3] It seems as though corporate America is investing in the technology without being entirely sure of how to apply it to business functions.

The American economy has seen capex-fueled bubbles and subsequent collapses several times in its history. The panics of 1873 and 1893 resulted in widespread railroad bankruptcies, the dot-com crash led to collapses in fiber network companies, and the housing bubble resulted in the Great Financial Crisis. In all these instances, the underlying investment concept – railroads, the internet, housing – was critical for the long-term growth of the national economy, but the leverage-fueled investment mania was unsustainable.

It is increasingly likely that the current trajectory of the AI story resolves itself in a binary fashion; either the tech visionaries achieve their goal of superintelligence, and the economy and society are profoundly reshaped or the technology never reaches the scale necessary to justify the investment and the bubble collapses on itself to cleanse the excess. The latter outcome will result in widespread capital losses that will severely impact those investors who were poorly diversified. The former will raise moral and ethical questions about the dignity of the human person and the value of work in an age where the marginal utility of labor falls to zero.

As David Hanna discussed in this site’s previous post, Catholics will look to our Holy Father, Pope Leo, for guidance as the world enters this rapidly changing economic age. It would not be surprising to see a recast of Rerum Novarum, echoing Pope Leo XIII’s views at the dawn of the Industrial Revolution. Here at KoCAA, we will not only continue to encourage investors to remain diversified across asset classes and sectors, but we will also constantly evaluate how technological innovations impact people across all walks of life.

[1] v0.1_State_of_AI_in_Business_2025_Report.pdf

[2] Big Businesses Have a Major Problem With AI

[3] AI Adoption Rate Trending Down for Large Companies - Apollo Academy