Open to the New and Procuring the Unknown

A nonstop low-grade fever of optimism fuels Wall Street. Over the last few months, markets have climbed sharply, propelled by the belief that AI will usher in a new Golden Era. No one knows for sure, but we are certain that optimism can be inebriating.

Intoxication can make us ignore the warning signs that things can get far worse than we anticipate. Is the AI investment boom an economic bubble that can vaporise like the dot-com bust in the early 2000s?

Recently, the antibodies argued that DeepSeek-R-1 was a Trojan horse, but the evangelists saw it as a gift to mankind. Meta is investing US$60-65B in capex in 2025 while growing its AI workforce. This unlocking of origination, digital infrastructure, investment, and talent attraction will drive its core products and business in the years ahead.

China’s DeepSeek has shown us that the AI race will be competitive. DeepSeek has demonstrated that significant efficiency gains are achievable for every AI company. There has been inefficiency, waste, and overpricing.

DeepSeek spooked investors and showed how a digitally skilled workforce could invent a workaround to the barrier posed by chip restrictions. The barrier was an incentive. It lit the slow fuse of the imagination. Fear has never contained creativity.

Major tech stocks, including Nvidia, Oracle, and Broadcom, tumbled when the Chinese AI “upstart” unveiled its platform that can compete with Silicon Valley at a much lower cost. Nvidia and Broadcom stocks plunged about seventeen per cent while Oracle’s stock declined fourteen per cent. What eventually happened was that the tech sell-off brought the broader stock market down with it.

The Standard & Poor’s 500 index fell 1.5% and the tech-focused Nasdaq sank 3%. Bankers were worried that DeepSeek and other Open Source AI-Assemblages could crush the profit capabilities of Silicon Valley AI behemoths, and chill the investment fevers. DeepSeek was using about 2,000 specialised Nvidia chips while Western companies were using supercomputers with as many as 16,000 chips.

DeepSeek was built in two months and cost under $6M, using NVIDIA’s H800 chips. The co-founder of the hedge fund High-Flyer is the founder of DeepSeek. In one day, Nvidia lost $600 billion in market value. This was the largest single-day drop in US corporate history. Optimism had to take stock of a model built with fewer chips, and the billions of tech giants have invested in AI Futures and Technology.

Despite the challenge, the US remains the dominant force in the AI sector, capturing about 68 per cent of the global venture capital funding for AI companies in the third quarter of 2024. Silicon Valley accounted for roughly half of that amount. If the AI-Assemblage investment bubble pops, it is less likely to be a systemic event that could crater the global economy.

However, there are many similarities between the late 1990s internet stock bubble and the present Information Revolution powered by AI. In both eras, digital technology innovation has pushed stock valuations and capital gains wealth to new heights. This, in turn, fuels consumption, adding to inflation pressures.

Nation-states must therefore be mindful that, then, as now, the promise of a new transformative technology may not meet market expectations in the near future, and can trigger a drop in stock valuations. Just as in 1999, investment in the technology and generative AI sector is not built on leverage, but on cash-rich technology companies. This is not financed by debt, so if there is a market correction, shareholders and some equity holders may suffer losses. And it may not necessarily trigger shocks to the broader financial system or impair the banking system.

Billions of dollars have been poured into AI Futures. At the heart of this tension is the seminal question – How to procure the Unknown? And how do small island developing states remain Open to the New?

The half-life of every digital technological innovation is getting shorter with each passing hour. Everything is radioactive! Product decay is hurried by the new. Billions of dollars are pouring into AI chips, computing power, data libraries, data embassies, and other digital architectures in the sprint to promise gains in productivity and opulence for all.

How will all of this investment address the plight of a planet bracketed by inherited inequality and intergenerational immobility? Failure to deliver the dream may have a limited impact on financial stability, but an AI correction could trigger a shift in sentiment and risk tolerance.

If this happens, the world will experience a repricing of assets that could put non-bank financial institutions under stress. At the height of the US property bubble in 2008, which triggered the global financial crisis, we witnessed multiple large bank failures and the deepest recession since the Great Depression of the 1930s. An impatient AI future awaits us.