The massive capital investment in AI infrastructure is predicated on the belief that more compute will always lead to better models (scaling laws). If this relationship breaks, the glut of data center capacity will have no ROI, triggering a severe recession in the tech and semiconductor sectors.

Companies feel immense pressure to integrate AI to stay competitive, leading to massive spending. However, this rush means they lack the infrastructure to measure ROI, creating a paradox of anxious investment without clear proof of value.

The current AI spending spree by tech giants is historically reminiscent of the railroad and fiber-optic bubbles. These eras saw massive, redundant capital investment based on technological promise, which ultimately led to a crash when it became clear customers weren't willing to pay for the resulting products.

Current AI investment patterns mirror the "round-tripping" seen in the late '90s tech bubble. For example, NVIDIA invests billions in a startup like OpenAI, which then uses that capital to purchase NVIDIA chips. This creates an illusion of demand and inflated valuations, masking the lack of real, external customer revenue.

Companies like NVIDIA invest billions in AI startups (e.g., OpenAI) with the understanding the money will be spent on their chips. This "round tripping" creates massive, artificial market cap growth but is incredibly fragile and reminiscent of the dot-com bubble's accounting tricks.

The AI boom's sustainability is questionable due to the disparity between capital spent on computing and actual AI-generated revenue. OpenAI's plan to spend $1.4 trillion while earning ~$20 billion annually highlights a model dependent on future payoffs, making it vulnerable to shifts in investor sentiment.

Historical technology cycles suggest that the AI sector will almost certainly face a 'trough of disillusionment.' This occurs when massive capital expenditure fails to produce satisfactory short-term returns or adoption rates, leading to a market correction. The expert would be 'shocked' if this cycle avoided it.

The AI market won't just pop; it will unwind in a specific sequence. Traditional companies will first scale back AI investment, which reveals OpenAI's inability to fund massive chip purchases. This craters NVIDIA's stock, triggering a multi-trillion-dollar market destruction and leading to a broader economic recession.

History shows a significant delay between tech investment and productivity gains—10 years for PCs, 5-6 for the internet. The current AI CapEx boom faces a similar risk. An 'AI wobble' may occur when impatient investors begin questioning the long-delayed returns.