Liaquat Ahamed warns of potential AI bubble similarities to 1873 crisis

Investment manager and author Liaquat Ahamed has drawn parallels between the current artificial intelligence boom and the railway investment bubble of 1873. Speaking on Bloomberg, Ahamed noted that both eras are characterized by massive capital requirements driven by enthusiasm for a transformative new technology.

In the 1870s, railway construction required investments equivalent to 5% of the US GDP. Today, hyperscale investments are estimated at approximately $1.5 trillion annually. Ahamed highlighted that just as railway expansion was heavily reliant on debt, modern technology firms are increasingly turning to bond markets as internal resources become insufficient to fund massive infrastructure needs.

A key warning sign identified is declining profitability. In 1872, only one in five railway companies paid dividends due to excessive resource allocation. Ahamed suggests that the current AI landscape may already be in a bubble, noting that historical bubbles of this magnitude have rarely ended well, with falling corporate profitability serving as a primary precursor.