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Comment by JCM9 | Hacker News Reader

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage.

The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors. Some of the “AI startups” will be sold in fire sales for parts so investors can at least minimize losses and most of the rest will vaporize, the likes of which we haven’t seen since financial firms imploded in 2008.

I hope I’m wrong, but the most experienced trusted folks I know are already repositioning themselves to weather the upcoming storm.

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> I hope I’m wrong

I kind of hope you're right. Any "hyped" industry/sector is bound to eventually needing to get back to reality, and focus on things that actually work, rather than spraying and praying prototypes and over-hyping them.

The individuals and companies building real products that actually improve something will stick around, either as they are, or at least as ideas, and most of the interesting stuff tends to happen when the hype dies down, as the builders continue as they were, but all the rest of the riffraff disappears.

There will still be a community and the ideas won't magically disappear, just smaller and more focused, which to me sounds like a much needed improvement over the current state of things.

Well we’re gonna get, and need, a big correction. I just hope it’s a “big correction” and not a financial implosion that sets the startup ecosystem back a generation.

> I kind of hope you're right.

I couldn't care less if big tech gets knocked down a peg, but in many quarters the AI boom is what's keeping the lights on. A market correction of that magnitude would mean a lot of pain for a lot of normal people, it's not exactly something I'm cheering on...

If the hype doesn't line up with the fundamentals, then the bubble will have to burst sooner or later.

But not knocking it down will also mean a lot of pain for the people? Just look at the unsustainable electricity demand and skyrocketing prices big tech is pushing upon the small folk due to their explosive needs for more and more big data centers.

As someone who've jumped on previous hype-trains, most of us who get involved with "frontiers" know it's over-hyped, have more realistic perspective of it and are more-or-less ready for what eventually will come.

I'm sure most people heavily invested into AI (energy, money or time-wise) know the consequences of the bet they've done, they're not exactly just trying to earn a living.

If the crash/bubble-pop would have change of impacting actual working class folks outside of the AI bubble, I'd agree with you. But I don't think the bubble is so large, the people impacted will be people who willfully made a risky bet.

I don’t know. I’ve read the AI bubble/spending is so big (new data centers, power plants, etc) that it’s propping up GDP. If that all went away plenty of normal people could get hurt. Still, probably better sooner than later. Well, maybe after the power plants are done so we have excess capacity.

Continuing the masquerade will only make things worse

Yeah, it's like an infection. Do you want to deal with it now, when it's painful and you'll lose your finger or when you risk your arm, or risk dying of Sepsis. You can put off the pain but that will make the outcome worse.

> A market correction of that magnitude would mean a lot of pain for a lot of normal people

A 1% increase in US unemployment results in thousands of excess deaths per year.

It is hard to be exact about the numbers, but the trend is clear and strong, see e.g. https://pmc.ncbi.nlm.nih.gov/articles/PMC3070776/

The AI boom is masking the fact that the rest of the US economy has crumbled. Things can’t even begin to be fixed until people see they aren’t ok.

Is there actually concrete numbers on this? I was speaking to a friend about this the other day and we both concluded we didn't actually have evidence either way.

The only upside here is if a few notables end up penny-less and dressed in orange. The mockery of solvent business practices, greed and theft is insane in this bubble. From copyrighted material to accounting fraud, I'm sure the fallout motion pictures will be entertaining some day.

Hard disagree. The correction you envisage to something smaller and more focused won't happen because this is also a race between nation states. The bubble is in the startups, and you're right to suggest many are doomed. But the AI giants have strategic national importance now, and won't be denied funding and resources while their foreign rivals continue to grow.

In my naïve of opinion, AI is not necessarily about coding or making things better, it's more about creating a system to control the message to the masses. Just like Facebook controlled the message during the Clinton/Trump campaigns, AI is going to control the message for the vast majority of easily swayed people. Especially now since it is very hard to detect between real and AI generated persons/data (see Tilly Norwood).

This relates directly from your post about nation states. Those who control the message control the people.

That return to reality has happened many times in the past. It has happened several times before with AI! In every case with the worthless stuff the bubble was propping up we also lost a lot of useful things too and it generally took a decade for the people who had those useful things that the bubble could help with to realize they shouldn't have stopped investing with everyone else when the fad changed.

Your comment made me think of this post:

https://www.palladiummag.com/2025/10/03/how-gdp-hides-indust...

I think it would be better to have a bust now when the actual sums that have already been spend are relatively modest (~100bn?) rather than the $1tn over the next couple of years people are talking about.

What about the rest of the economy? Deutsche Bank recently said that the AI hype is the only thing holding the US stock market together. And if that crashes, it tends to ripple world wide.

Scary stuff, at least to someone who doesn't know all that much about market resilience. With what little I know, I'm hoping for a soft pop with slow deflation. But big tech seems to just pump harder right now.

I hope it all burns. Zero sympathy whatsoever for AI-anything. It's all a heaping pile of trash.

You hope the garbage heap surrounding your house burns?

You're hoping for a full on market crash? I don't mind AI hype companies crashing, would probably low key enjoy it with popcorn. But from what I understand, it's not that localised.

Yeah it will be funny. I couldn't care less. My tea and tobacco will still be just as cheap as it ever was. I'll still be playing my lute on the porch, unaffected.

You realize the startup you are working on would directly be impacted by any sort kf "AI Winter" right?

My startup is already dead in the water because I built it in an ADHD-fritz and only did it to spite a YC company, and in that regard I succeeded wildly because they threatened to sue me. Haha! I'm working on much cooler shit right now. Sick own though, checking my profile and all that.

It's not supposed to be a burn. My point is being flippant about a potential market crash under the assumption that you can somehow weather it out is extremely unrealistic unless you are a HNWI.

I'd rather not care than care about some event that is entirely out of reach for me to affect. It just doesn't matter. My grandmother has no idea what a 'market' is. She's doing fine.

Any big bust will have broader market implications, but I don’t think this has the broad systemic impact that the financial crisis did. It will likely be really ugly for those caught up in it, but a news story and minor blip to the 401k of everyone else. If you are well diversified keep your head down and keep going. If you’re a VC that heavily invested in AI, I suggest preparing for a Cat 5 hurricane now.

The biggest impact the average person will see is that the days of VC funded cheap AI will be over. If they want to use AI to cheat on their essay they’ll need to pay a lot more.

Well, that sounds pretty good to me, hope you're right.

https://www.slickcharts.com/sp500

NVDIA makes up 7.5% of the S&P500. It will not be a minor blip to 401ks if it collapses.

NVDIA has plenty of other business and will not drop to 0. Even if they drop 75%, than is still only a 2-3% (the math on percentages is weird and I don't feel like doing it - and I shouldn't because a 75% drop is just a random number and so I have no significant figures to work with) drop in my 401k. Of course other companies will be hit as well, but still my 401k will not drop and more than any other stock market crash, and there is every reason to think it will recover. It might stop my plans to retire in the next 10 years (but they were of questionable realism anyway), but any longer than that and odds are it will recover.

That's literally one company being used to make a point. At least 25% of the S&P is composed of highly AI-leveraged companies.

And you're acting like massive market changes don't propagate and won't cause ripple affects across the economy that impact other markets and change the view of financial risk.

Most companies have non ai business. They will fall but it won't be to zero. Bubbles have poped before, and they have been leveraged too. There will be some bad years - but in 15 years things will have recovered and we will be on the next bubble

I'd say you are underestimating the industries being propped up by the AI Boom.

To name a few examples - Construction (the industry pivoted to DCs) [0], the entire hardware industry (from personal experience CHIPS act recipients pivoted to AI-hype because of slow reimbursement rates), whatever tech hiring that even exists in the US at this point is itself looped into and justified by the AI boom or capital that is 1-2 degrees removed from the AI boom, the entire energy industry is tied to the AI boom [1], and the renewables industry in the US is increasingly AI-washed now as well [2] because of the ending of IRA and IIJA disbursements under Trump.

This wouldn't be a 2008 sized event, but it would be a bloodbath comparable to the Telecom Bust (2001) and the Dot Com Bust (2001). I would trust that every HNer would be worried about such a situation because of how existential a risk it would be for the entire tech industry - which employs most people on this forum.

[0] - https://www.mckinsey.com/featured-insights/themes/whos-fundi...

[1] - https://www.politico.com/news/magazine/2025/08/05/energy-ind...

[2] - https://www.bloomberg.com/news/articles/2025-09-26/ai-boom-w...

I would caution that people who think they've diversified are not. A huge portion of the S&P 500 is the top handful of companies, so an index fund may mostly end up heavily invested in those firms.

Some people have shifted investments around to fix that, but I'm sure many people will be quite surprised.

Agreed. If you look at what's in the S&P 500, 7.49% is nVidia, 6.33% is Microsoft, 4.88% is Google, 3.86% is Amazon, and 2.95% is Meta. That's over 25% of the S&P 500 in companies that will see their share prices fall heavily if there's yet another AI winter.

Right. And that without considering semiconductor manufacturing/design (AMD, TSMC, Broadcom, etc.) and other second order effects.

Under diversification, as you are describing, is the first ingredient…

I suspect the second ingredient is US boomers right on the edge of retirement or otherwise shifting to fixed income… And a normal correction causes all of them to divest simultaneously from equities.

There is a potential for a stampede out of US equities.

> Deutsche Bank recently said that the AI hype is the only thing holding the US stock market together.

Doesn't sound right. Russel 2000 is up ~10% YTD.

This 10% is largely due to weaker dollar though.

It doesn't have to be bad. Part of the weak jobs market is companies spending their money on GPUs rather than hiring humans. That could reverse.

Most of the world already seems drifting towards far-right authoritarianism based on "just" run-of-the-mill cost-of-living increases and resentment towards economic elites (and a lot of that is lingering, never-healed fallout from the 2008 crisis). I dread to see what the reaction will be to a genuine global crash right now.

It’s pretty scary. According to Barron’s, MicroStrategy, a bitcoin treasury company, alone makes up about 5% of the U.S. convertible bond market. That’s remarkable given that it isn’t a typical tech or biotech growth company issuing convertibles, but essentially a Bitcoin treasury company.

Not even AI!

> The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors

I don’t think this is likely. We’ve seen VCs overextend into social networks, “sharing economy”, B2BSAAS, machine learning, developer tools, video games and crypto, in the last 15 years, and they have very little to show for it. Something new will come along and they’ll invest in that.

VCs typically invest money invested in them, so if that dries up, regardless of what dream they want to chase, they can't. The hypes you list all happened, but I don't think I've seen anything in the last 20 years that even comes close to the current AI hype.

The banking sector in the US had assets north of 12 trillion dollars. AI last year had about 100–150 billion dollars of market cap.

I think because we hear about AI so much, we tend to exaggerate its importance?

The real question is if enough fails to cause systemic risk. Hopefully the GSIBs ( https://en.wikipedia.org/wiki/List_of_systemically_important... ) aren't too badly exposed.

I think the debt is what makes the risk systemic. Sure it can be overvalued, but alone that won't cause a generationally painful economic meltdown. It's the spending and debt that make something that is a bubble into something truly dangerous. All the exotic private credit and structured finance that is powering this thing along with the lack of any viable revenue stream to keep up with the debt plus interest that make this thing so dangerous. Sure maybe Meta can take a huge hit and limp away (it's still gonna be very painful for them and people who own a lot of its stock) but can OpenAI, can CoreWeave or any of the firms that lent to them? It's a domino effect. The fact that Meta is doing this is a huge red flag. The problem is the market is rewarding this endless cash burn without any way to generate the appropriate revenue. Once reality catches up there are a ton of knock on effects.

> but the most experienced trusted folks I know are already repositioning themselves to weather the upcoming storm.

Repositioning in what way?

The same way they always do every single year: they re balance their portfolio so they are never heavily invested in any one thing.

If you believe in AI and want to bet strongly in it - which some experienced folks do - you take 5% of your portfolio and bet that in AI. The other 95% is invested in a diversified portfolio.

There are many inexperienced investors. Anyone can ride a bubble up and make a lot of money. There is no reason to think you can call the top of a bubble (or if there is a bubble!) consistently enough to bet on it.

And what about in the private markets? YCs entire recent cohort was AI alongside many of the “top” firms.

I'm not 100% sure how YC works, but generally places like that are invested in by people who use it as the risk portion of the portfolio. So you while YC might be 100% in AI, the people behind YC or only 5% in and so it works out. If you have 100% in any company then you are diversified and need to fix your portfolio.

It is generally best for a company to specialize in something they do well. It is possible that YC has picked winners because their specialize in this, and thus even though the AI bubble collapses they are okay. Who knows - but this is something specialists can do in some cases

No problem. They can use some of that data center compute power to mine bitcoin.

https://www.whitehouse.gov/presidential-actions/2025/03/esta...

What you’re describing is my understanding of how VC is designed to work.

I don’t even mean that as cynical— the model is designed to spread risk and let winners emerge, both in company leaders and technology.

That necessarily means periodic culling.

> The startups ecosystem will suffer extensive and catastrophic damage.

These a feature, not a bug of how the startup ecosystem works.

> The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors.

Once again, a feature. There's too many VCs and too many funds.

> the likes of which we haven’t seen since financial firms imploded in 2008.

Institutional financials firms dwarf VC private capital. This alarmist comment makes it sound like a nuke going off in a Nevada desert is going to kill a major US city.

Some of the “AI startups” will be sold in fire sales for parts so investors can at least minimize losses and most of the rest will vaporize

Sometimes literally.

Every time a tech bubble pops, it's an opportunity to upgrade your work-from-home furniture cheap.

I've gotten some nice chairs and even have a nice coffee table that used to grace an office lobby in the old WaMu tower in Seattle.

I guess that makes me a home furnishings vulture.

> this wipes out a bunch of VCs and investors

Hard to see this as a bad thing.

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