‘The Atlantic’: Here’s how the AI crash happens – The U.S. is becoming an Nvidia-state

Data centers in New Carlisle, Indiana
Photo: ‘The New York Times’

“What if AI’s promise for American business proves to be a mirage? What happens then?” – ‘The Atlantic’ puts a problem.

The AI boom is visible from orbit. Satellite photos of New Carlisle, Indiana, show greenish splotches of farmland transformed into unmistakable industrial parks in less than a year’s time. There are seven rectangular data centers there, with 23 more on the way.

The amount of energy and money being poured into AI is breathtaking. Global spending on the technology is projected to hit $375 billion by the end of the year and half a trillion dollars in 2026. Three-quarters of gains in the S&P 500 since the launch of ChatGPT came from AI-related stocks; the value of every publicly traded company has, in a sense, been buoyed by an AI-driven bull market. To cement the point, Nvidia, a maker of the advanced computer chips underlying the AI boom, became the first company in history to be worth $5 trillion.

Here’s another way of thinking about the transformation under way: Multiplying Ford’s current market cap 94 times over wouldn’t quite get you to Nvidia’s. Yet 20 years ago, Ford was worth nearly triple what Nvidia was. Much like how Saudi Arabia is a petrostate, the U.S. is a burgeoning AI state — and, in particular, an Nvidia-state. The number keeps going up, which has a buoying effect on markets that is, in the short term, good. But every good earnings report further entrenches Nvidia as a precariously placed, load-bearing piece of the global economy.

AI expenditures accounted for 92 percent of GDP growth during the first half of 2025

America appears to be, at the moment, in a sort of benevolent hostage situation. AI-related spending now contributes more to the nation’s GDP growth than all consumer spending combined, and by another calculation, those AI expenditures accounted for 92 percent of GDP growth during the first half of 2025. Since the launch of ChatGPT, in late 2022, the tech industry has gone from making up 22 percent of the value in the S&P 500 to roughly one-third. Many people believe that growth will only continue.

Listen to the AI crowd talk enough, and you’ll get a sense that we may be on the cusp of an infrastructure boom. And yet, something strange is happening to the economy. Even as tech stocks have skyrocketed since 2022, the companies’ share of net profits from S&P 500 companies has hardly budged. Job openings have fallen despite a roaring stock market, 22 states are in or near a recession, and despite data centers propping up the construction industry, U.S. manufacturing is in decline.

It’s clear that AI is both drowning out and obscuring other stories about the wobbling American economy. That’s a concern. But even worse: What if AI’s promise for American business proves to be a mirage? What happens then?

The yawning gap between data-center expenditures and the rest of the economy has caused whispers of bubble to rise to a chorus. A growing number of financial and industry analysts have pointed out the enormous divergence between the historic investments in AI and the tech’s relatively modest revenues. For instance, according to The Information, OpenAI likely made $4 billion last year but lost $5 billion (making the idea of a $1 trillion IPO valuation that much more staggering). From July through September, Microsoft’s investments in OpenAI resulted in losses totaling more than $3 billion.

Nightmare scenario?

The economic nightmare scenario is that the unprecedented spending on AI doesn’t yield a profit anytime soon, if ever, and data centers sit at the center of those fears. Such a collapse has come for infrastructure booms past: Rapid construction of canals, railroads, and the fiber-optic cables laid during the dot-com bubble all created frenzies of hype, investment, and financial speculation that crashed markets. Of course, all of these build-outs did transform the world; generative AI, bubble or not, may do the same.

The data-center financing ends up being a real-estate deal as much as an AI deal. If this sounds complicated, it’s supposed to: The complexity, investment structure, and repackaging make exactly what is going on hard to parse. And if the dynamics also sound familiar, it’s because not two decades ago, the Great Recession was precipitated by banks packaging risky mortgages into tranches of securities that were falsely marketed as high-quality. By 2008, the house of cards had collapsed.

Data-center build-outs aren’t the same as subprime mortgages. Still, there is plenty of precarity baked into these investments. Data centers deteriorate rapidly, unlike the more durable infrastructure of canals, railroads, or even fiber-optic cables. Many of the chips inside these buildings become obsolete within a few years, when Nvidia and its competitors release the next wave of bleeding-edge AI hardware.

The people are getting anxious

The people who are paying attention to this cycle are getting anxious. On a scale from one to 10, the AI-bubble concern is: if tech stocks fall because of AI companies failing to deliver on their promises, the highly leveraged hedge funds that are invested in these companies could be forced into fire sales. This could create a vicious cycle, causing the financial damage to spread to pension funds, mutual funds, insurance companies, and everyday investors. As capital flees the market, non-tech stocks will also plummet: bad news for anyone who thought to play it safe and invest in, for instance, real estate. If the damage were to knock down private-equity firms (which are invested in these data centers) themselves — which manage trillions and trillions of dollars in assets and constitute what is basically a global shadow-banking system — that could produce another major crash.

Boom and bust can feel like two sides of the same coin: Consider also that if AI companies deliver on their massive investments, it would likely mean producing a technology so capable and revolutionary that it wipes out countless jobs and sends an unprecedented shock wave through the global economy before humans have time to adapt. (Perhaps we will be unable to adapt at all.)

If they fail, there will likely be unprecedented financial turmoil as well.

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