While much of the wealth-owning world is positively smitten by the financial promise of large language models (LLMs) and the data centers necessary to power them, one major tech investor is sounding the alarm.
Roger McNamee, a career tech financier who made successful bets on companies including Google, Facebook, and Amazon, recently penned an ominous essay in The Guardian, warning that the AI industry is set to collapse.
By the end of 2025, he writes, the tech industry will have invested over $700 trillion in LLMs, a figure he says companies are likely to repeat next year, barring catastrophe. The trouble for tech companies, however, is that catastrophe is likely right around the corner — and underneath all that AI spending, the economy is looking grim
“In a technology investing career that now spans 43 years, I have never seen a phenomenon remotely like large language model AI,” McNamee writes. “Big tech, journalists, politicians, CEOs and investors are all convinced that AI is an inevitable Next Big Thing that will change everything in our economy and society for the better.”
The issue, he says, is a catch few have considered: “even if the technology delivers on its promise,” he continues, “many, if not most of the current players are bound to fail. The knock-on effects of these failures may be catastrophic, especially for equity investors.”
To McNamee, it’s a rat race between the five or six massive tech corporations building LLM models which are “essentially identical.” These are Google, Amazon, Meta, xAI, and the Microsoft/OpenAI partnership, depending on how that whole situation shakes out.
Each company is burning billions on AI in the hope of becoming the dominant player in the LLM space, basically pursuing a global monopoly — the British East India Company of the 21st century.
Of course, as the investor points out, monopolies are necessarily exclusive ventures, meaning whichever tech giant doesn’t eke out the lead will be forced to fight over crumbs.
McNamee’s opinion has the added benefit of doubling as a foundational piece of economic science. As far back as the mid 1800s, economists have noted the tendency for capitalist systems to produce monopolies, unless reined in by government regulation to promote healthy competition.
Even the godfather of American Economic thought, Adam Smith, warned about this tendency. In his infamous 1776 tome “The Wealth of Nations,” he railed against the monopoly which the British had over the thirteen colonies: “to found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers.”
The difference here is that those monopolies of yore still produced something of value — something today’s AI tycoons have yet to accomplish.
As McNamee puts it: “the day may come sooner than many expect when shareholders, directors and executives will demand evidence that the massive investment in LLM technology will generate an adequate return for them. The answer will be no for many, if not most, players, and the reckoning will ugly for everyone.”
The only question remaining is when the other shoe drops — and how much uglier the financial situation is when it does.
More on the AI bubble: The AI Bubble Bursting Would Actually Be Incredible for the Economy, Economist Says