The Four Horsemen of the AI Bubble Apocalypse

Horse names, from left to right: Death (of hyperscaler free cash flow), Conquest (of recursive self-improvement), War (between open-weight and closed frontier models), and Famine (with anti-AI populism or regulation starving America’s AI firms of data centers and other resources)

AI is doing so many things at once that it’s hard to follow the plot. Somehow, all of this has happened in just the last two weeks:

• On July 16, the Chinese company Moonshot AI released Kimi K3, a hugely impressive open-weight model that approaches the performance of the best American-made AI while costing a fraction of the price, intensifying fears that—as in so many industries—cheap Chinese products could soon overwhelm American competitors.
• On July 21, OpenAI acknowledged that one of its AI agents had escaped its testing sandbox and hacked into another company, Hugging Face, marking what seemed like the worst autonomous AI hack in recorded history … until Anthropic announced three similar breaches just one week later.
• On July 22, Alphabet disclosed that its quarterly free cash flow had turned negative for the first time in the public company’s history, as AI capital spending overtook the cash generated by its core businesses.
• On July 29, Meta announced its latest earnings, and when investors digested the results, its stock plunged nearly 10 percent in 24 hours. The company’s AI investment has obliterated free cash flow, and analysts now worry that Zuckerberg has no plan to turn his AI investment into returns.
• On July 30, one of the most famous AI funds crashed out and sold off the bulk of its portfolio, after South Korea’s AI-fueled stock boom abruptly imploded, with its major index plummeting by more than 40 percent over several trading sessions.1

If I had to shove all of these developments into one sentence, I might pick this one: The capabilities of AI are becoming more powerful, while the economic underpinnings of the AI buildout—and, as we’ll discuss, the political support for AI—are…