You must leave now, take what you need you think will last.
But whatever you wish to keep, you better grab it fast.
— Bob Dylan
If September 2025 was peak bubble, 2026 will likely the year which it all falls apart. The clues are everywhere. Here are two I read this morning:
And a longer analysis, focused on debt, at The New York Times Times, worth reading in full:
As the summary at the top puts it:
It’s all over now, Baby Blue. Whether it all falls apart suddenly, or gradually, I do not know. And LLMs will continue to exist.
But the economics don’t make sense, and never will, in large part because of the core technical problems that I have stressed repeatedly here and elsewhere since 2019. Without world models. you cannot achieve reliability. And without reliability, profits are limited.
The technical problems are not new. And a trillion dollars or so of investment hasn’t remedied them.
What is new that they have at last become widely recognized, not just as the transitory “bugs” the industry wanted you to think of, but as inherent limitations that flow from the very design of LLMs they really are. This cold reality in turns undermines a large fraction of the use cases that people initially fantasized about.
Once the implications are fully appreciated, the whole thing will begin to unwind.
Gary Marcus first warned about the poor economics of generative AI and the possibility of an AI bubble here in this newsletter in a pair of articles in August 2023.
