The contradiction at the heart of the trillion-dollar AI race
1 day ago Share Save Faisal Islam Economics editor Share Save
BBC
Google's ultra-private CEO Sundar Pichai is showing me around Googleplex, its California headquarters. A walkway runs along the length of it, passing by a giant dinosaur skeleton, a beach volleyball pitch and dozens of Googlers lunching under the hazy November sun. But it's a laboratory, hidden away at the back of the campus behind some trees, that he is most excited for me to see. This is where the invention that Google believes is its secret weapon is being developed. Known as a Tensor Processing Unit (or TPU), it looks like an unassuming little chip but, says Mr Pichai, it will one day power every AI query that goes through Google. This makes it potentially one of the most important objects in the world economy right now. "AI is the most profound technology humanity [has ever worked] on," he insists. "It has potential for extraordinary benefits - we will have to work through societal disruptions." But the confusing question lingering over the AI hype is whether it is a bubble at risk of bursting - as, if so, it may well be a spectacular burst akin to the dotcom crash at the start of the century, with consequences for us all.
Bloomberg via Getty Images A walkway runs along the length of Googleplex, passing by a giant dinosaur skeleton, a beach volleyball pitch and staff lunching in the winter sun
The Bank of England has already warned of a "sudden correction" in global financial markets, saying "market valuations appear stretched" for tech AI firms. Meanwhile. OpenAI boss Sam Altman has speculated that "there are many parts of AI that I think are kind of bubbly right now". Asked whether Google would be immune from a potential bubble burst, Mr Pichai said it could weather that potential storm - but for all his starry-eyed excitement around the possibilities of AI, he also issued a warning: "I think no company is going to be immune, including us." So why, then, is Google investing more than $90bn a year in the AI build-out, a three-fold increase in just four years, at the very moment these suggestions are being discussed?
The big AI surge - and the big risk
The AI surge - of which Google is just one part - is, in cash terms, the biggest market boom the world has seen. Its numbers are extraordinary - there is $15 trillion of market value at Google and four other tech giants whose headquarters are all within a short drive of one another. Chipmaker turned AI systems pioneer Nvidia in Santa Clara is now worth more than $5 trillion. A 10-minute drive south, in Cupertino, is Apple HQ, hovering around $4 trillion; while 15 minutes west is $1.9 trillion Meta (previously Facebook). And in the centre of San Francisco, OpenAI was recently valued at $500bn.
Google's parent firm Alphabet, headquartered in Mountain View, is worth about $3.3 trillion, and has almost doubled in value since April, (which every Googler on campus will no doubt be feeling through the value of their stock options)
The purely financial consequences of this trend are significant enough. The value of the shares in these companies (and a few others outside Silicon Valley, such as Microsoft in Seattle) have helped cushion the US economy from the impact of trade wars, and kept retirement plans and investments buoyant - and not just in the US. Yet it comes with a big risk. That is, the incredible dependence of US stock market growth on the performance of a handful of tech giants. The Magnificent 7 - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla - collectively comprise one third of the valuation of America's entire S&P 500. And that market value is now more highly concentrated in a few firms than it was during the dotcom bubble in 1999, according to the IMF.
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