A history lover’s guide to the market panic over AI

ANDREW Odlyzko, a professor of mathematics at the University of Minnesota, has a side hustle: he has become one of the world’s foremost experts on the history of speculative bubbles. Part of his time is spent at the Bank of England, where he photographs pages from thousands of handwritten ledgers which he later scours for clues about earlier episodes of excess. He hopes that generative artificial intelligence (AI) will one day take the drudgery out of the task. It is not lost on him that the latest speculative mania revolves around the technology itself.

In recent days the standard-bearers of generative AI, including Nvidia, a chipmaker, and tech giants such as Amazon and Microsoft, have plummeted in value. That has left sceptics, who had warned of a bubble in the technology, feeling terribly clever. Many pointed to two earlier periods of frenzied over-investment: the railway manias of the 19th century and the telecommunications bubble of the late 1990s. In both cases, the capital expenditures were similar to the huge amounts that big-tech firms are promising to spend on the data centres at the heart of the AI revolution.

Professor Odlyzko is an authority on both episodes. His research on the railway manias of 19th-century Britain is widely cited. Before becoming an academic, he worked at Bell Labs, a famed research outfit, where he was one of the first to question the fallacy that Internet usage was doubling every 100 days. Yet he dismisses the idea that railways or the Internet are useful guides to thinking about generative AI. They start from different positions, he says. Both railway and telecoms firms knew early on how profit could be generated: the first by taking traffic from other forms of transport; the second by eclipsing other forms of communication and entertainment. It was estimates of the size of the potential bonanza that proved hallucinatory.