The AI Boom May Resemble Social Media More than Telecom

Good morning. It’s understandable that people often frame the AI boom in terms of earlier tech investment cycles, notably the telecom boom and bust of the 1990s and early 2000s.

The telecom cycle creates a compelling narrative arc, with a rise, fall and ultimate redemption led by the smartphone. But looking at past tech cycles to understand the current AI era will only get you so far. This boom needs to be understood on its own terms, in all of its particularity. Despite its similarity to telecom or railroads or any other capital-intensive wave of innovation and construction, it’s still unique, a category of one.

But to the extent that analogizing from the past is useful, we might be able to see something about AI by looking at it through a different lens. The telecom boom was followed shortly thereafter by the early years of social media. Plenty of companies from that era ran into trouble, culminating with the displacement of Myspace by a new leader, Facebook.

The soaring growth of telecom led to an industrywide bust that rippled through the financial markets and the economy. Social media cut a different pattern, in which individual companies deflated even as the entire market grew.

People often see AI through the lens of telecom, because both involve so much capital, with AI setting records on that front. But there’s a big difference between telecom and AI infrastructure demand, according to Heath Terry, global head of technology and communications research at Citi. About 94% of the fiber laid during that period was “dark”, or unused at the time, according to Terry, who leads AI research as part of his role. “There are no dark GPUs,” Terry told me earlier this year.

Social media and AI have viral appeal, and they have both sparked a profound backlash. Yet they both continue to grow, that love-hate relationship with the public notwithstanding.

While the AI revolution is bound to produce winners and losers, that doesn’t necessarily mean it must conform to the “boom-bust” cycles of the past, or for that matter, any historical pattern at all.

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Follow Isabelle Bousquette on LinkedIn, Instagram, X, and TikTok for more behind the scenes on her tech and AI coverage, and lately, her contributions to the WSJ Leadership Institute’s new Executive Resilience series, where she’s profiling America’s top execs about their fitness and wellness habits.

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