Lenny Mendonca and Martin Neil Baily
HALF MOON BAY, CALIFORNIA – A familiar anxiety has returned to financial markets. Amazon is devoting $100 billion to data centers. Meta has committed more than $600 billion to building them over three years. Microsoft, Google, and Apple plan to spend hundreds of billions more. With AI investments running into the trillions, are we witnessing a bubble, and what will happen if it bursts?
We have been here before. One of us (Martin) served as chairman of the White House Council of Economic Advisers during the late 1990s technology boom, and the other watched California navigate the dot-com collapse and the 2008 financial crisis from various government and consulting roles. Our experience tells us that even if an AI correction comes, it will not trigger the kind of financial crisis that devastated the economy in 2008-09.
The reason is that the structure of AI investment is fundamentally different from what we saw in these previous episodes. The dot-com collapse is remembered for dramatic losses – the Nasdaq fell 77% from its March 2000 peak – and spectacular flameouts like Pets.com. But the economic story was more nuanced.
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