The Financial Growth of AI (and How to Make Sense of It)

By: Josh Portnoy

Currently, AI feels like the innovation of the century. Companies talk about it like it will change everything, and the stock market agrees. Confidence is high, and anyone who doubts it seems out of touch.

However, if you dig deeper and see how this boom is being paid for, things become confusing.

Big tech companies are borrowing huge amounts of money to fund AI projects. Since data centers, chips, and the power to train AI models cost a ton of money, companies are spending first and worrying later. 

Companies are even taking on debt just to make sure they don’t fall behind. They are hoping that AI will earn enough money to support this risk, but they are still unsure of how fast or how much it will make.

But if AI is really as safe as everyone says, why do companies need to borrow so much to chase after it? This is the question many investors ask themselves. 

Safe opportunities usually don’t need this level of urgency, and borrowing this aggressively shows that the payoff isn’t guaranteed, just predicted. Companies are acting like the opportunity is too big to ignore, even if the math doesn't add up.

Many predict that this could be a bubble. A bubble occurs when the price of stocks goes beyond their intrinsic worth because people believe they can sell those stocks later at a higher price. 

A well-known example of one is the Dot-Com bubble in the 1990s. Companies rushed to build businesses based on the internet, and the public invested in anything related to the web. Many of those companies failed, and stock prices crashed. 

However, the internet itself did not disappear from the effects of the bubble. As we know, it ended up changing the world. While bubbles can be bad due to the waste of money and losses of resources, they can also speed up progress by advancing technology further than if they had not happened.

We can see from history that this doesn’t mean AI is fake or that a crash is coming, but it could mean the story might be overblown. AI can still change industries, create new products and opportunities, and turn lives around while still being risky. 

Both things can be true, especially with a versatile product such as AI. For investors, the lesson isn’t to ignore AI but to stop confusing certainty with their own confidence. Watching how companies spend and borrow to use AI gives investors a better idea of the risk involved than any headline can. 

If someone wants to make the most of the sudden growth of AI, understanding the elements behind the boom might be the smartest move of all.