"Tech giants Amazon, Meta, Alphabet, Microsoft, and Oracle have been taking on enormous new debt in a race to build out their artificial intelligence ventures in the last year, fueling Wall Street fears of a bubble capable of disrupting the entire economy. In this edited conversation, Andy Wu, Arjun and Minoo Melwani Family Associate Professor of Business Administration at Harvard Business School, explains why AI hyperscalers - firms that operate, or will need to operate, massive, global data centers - are taking on enormous liabilities and whether investors are right to worry about a possible AI bubble."
"Why are generative AI firms fundraising so aggressively? Generative AI is perhaps the most exciting technology since the rise of the internet. That excitement has attracted a significant amount of attention from private equity, venture capital, and public equity investors. I agree with the consensus about the long-term value creation potential of generative AI. But achieving that long-term vision requires a capital-intensive infrastructure buildout. We need more data centers, more chips, and more electricity to handle the escalating computing needed to both create frontier AI models (training) and use them (inference)."
"While generative AI can do amazing things, it is also perhaps the most wasteful use of a computer ever devised. If you do 1+1 on a calculator, that's one calculation. If you do 1+1 in generative AI, that is potentially a trillion calculations to get an answer. That consumes a huge amount of chip capacity and electricity."
Major tech firms have taken on substantial new debt to scale generative AI capabilities, prompting concerns about an investment bubble. Generative AI demands far more computing power, data centers, chips, and electricity than typical applications, because training and inference involve vastly greater numbers of calculations. Companies are building infrastructure and acquiring hardware to meet these needs, which creates significant liabilities for hyperscalers. The macroeconomic risk from this buildout depends on how much exposure external investors, suppliers, and vendors accept, while large tech firms operating hyperscale data centers remain relatively insulated.
Read at Harvard Gazette
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