Thorsten Hens On Why An Ai Bubble Could Benefit The Economy While Still Being Terrible For Investors

Just interviewed Thorsten Hens, professor of financial economics at the University of Zurich, and asked him the obvious question: is AI a bubble? He said yes, pretty much without hesitation. But the part I didn't expect was that he doesn't really see that as a bad thing.

His point is basically that people are cautious about putting money into uncertain ideas, and the speculative hype is kind of what gets capital moving in the first place. It funds a bunch of experiments, people try things they'd never try otherwise, most of it probably fails, but some of it ends up actually driving growth. Which makes sense if you're looking at the economy as a whole, a bit less so if you happen to be the one who financed one of the failures.

He also described how a bubble gets going, and funnily enough it starts from something completely reasonable - a new technology really does create value, so some companies deserve higher valuations. Then another crowd starts buying just because prices are going up, more people see others making money, FOMO sets in, and at some point nobody's really buying for the original business case anymore.

What stuck with me is that there are sort of two questions that get mixed together whenever people talk about AI. One is how useful the technology will actually become, the other is what return you get as a shareholder at the price you're paying today. And you can be totally right about the first and still lose on the second, i.e. the value is real but it goes to customers, or competition eats the margins, or the whole thing just costs way more to build than anyone expected.