Far be it from tech writers to chart yield curves or forecast jobs data, but it doesn’t take a tenured econ professor to notice the sorry state of the financial world. Thanks to Trump’s disastrous invasion of Iran, gas has surged to $9 a gallon in some places, the Dow and Nasdaq have officially entered a correction, and Bloomberg TV anchors are actively weighing the possibility of a full-blown “recession” on the airwaves.
If they’re right, people across the US — indeed, the world — are in for plenty of financial pain. And though we’re fresh out of pity, the effects on the AI industry, which has long been speculated to be in a financial bubble, could be catastrophic.
Well before the US war on Iran kicked off in late February, there were already trillions of dollars stuffed into the AI industry — a bottomless pit swallowing every last penny it comes across. Even several years into the goldrush, AI still has yet to deliver any returns indicating that the world’s financiers might one day make their money back, let alone turn a profit.
As more and more capital is fed to the machine, the rest of the economy only becomes more dependent on its eventual success. Depending on which economist you ask, the US would have found itself in a functional recession back in the first half of 2025 had it not been for this rampant tech spending.
Should anything trigger a recession under these conditions, that capex spending would effectively “evaporate,” as the Economy Policy Institute’s Josh Bivens argued in a macroeconomic report published earlier this month. As Matteo Wong and Charlie Warzel argue in the Atlantic, such a crash would be catastrophic for everybody: a polycrisis for the ages as tech firms, investment portfolios, banks, and private lenders grapple with obscene amounts of debt.
Under this scenario, data center builds would ground to a halt — significantly stalling AI’s future growth prospects — not to mention job losses in companies feasting on the overabundance of cheap capital.
Whatever AI industry emerges from the rubble if it all comes crashing down will surely be significantly different from the one we’ve experienced over the last few years — smaller, more realistic, and, hopefully, grateful just to be alive.
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The post If Trump’s War in Iran Spirals Into a Full-Blown Recession, It Could Crush the AI Industry and Spark a Catastrophic Polycrisis appeared first on Futurism.
