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Dr Jeffrey Funk: The AI Bubble will end in financial catastrophe

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Sep 8, 2025

Guest

Jeffrey Funk

In this engaging conversation, Dr. Jeffrey Funk, a retired professor and consultant with decades of experience in technology adoption and economics, exposes the looming crisis of the AI bubble. He delves into the disconnect between AI prices and infrastructure costs, highlighting an alarming 90-95% project failure rate. Funk critiques media myths driving inflated valuations, warns of overhyped generative AI, and shares invaluable advice for entrepreneurs: prioritize questions and real-world problems over trends. This insightful discussion sheds light on the financial risks that could unfold.

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INSIGHT

Bubble Economics Trump Technical Progress

The AI bubble is driven by money flowing in rather than real revenue or productivity gains.
Vast investments and low prices mask unsustainable economics that will correct when costs rise.

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INSIGHT

Revenues Lag Infrastructure Spend

AI revenues remain tiny compared with past tech revolutions while infrastructure spending soars.
AI companies often price services below cloud costs, creating large hidden losses.

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ADVICE

Target High-Value Narrow Use Cases

Find customers with strong willingness-to-pay and accept low performance early on.
Start with narrow, high-value applications instead of targeting everyone.

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Why the AI Hype Began

00:51 • 4min

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AI Revenues vs. Infrastructure Costs

04:36 • 9min

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Technical Narcissism and Misunderstanding Work

13:52 • 7min

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Media, Valuations and the Meme Coin Dynamic

20:40 • 6min

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Jeffrey's Journey Through Tech Bubbles

26:49 • 9min

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Why Most AI Projects Fail

35:33 • 4min

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Predictive vs. Generative AI: What Works

40:00 • 5min

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Breakthroughs Are Rare; Beware Big Promises

45:00 • 4min

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Hollywood Myths Fuel Tech Fantasies

49:22 • 7min

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Education, Metrics and the Tyranny of Box-Ticking

56:40 • 5min

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AI Suppresses Questioning and Deep Thinking

01:02:10 • 11min

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When AI Tests and Productivity Metrics Mislead

01:13:06 • 5min

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Generative AI as Box-Ticking; Loss of Meaningful Outputs

01:18:29 • 6min

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Economic Signals, Pricing, and the Bubble Trigger

01:24:55 • 6min

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Concentration Risks: NVIDIA and the Supply Chain

01:31:04 • 7min

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What Constitutes an Industrial Revolution?

01:38:10 • 7min

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Generative AI Bubble's Broader Impact on Startups

01:45:30 • 5min

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Advice for Young Entrepreneurs

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Irrational Exuberance

Robert J. Shiller

In this book, Robert J. Shiller examines the forces that drive market volatility, including cultural, psychological, and structural factors. He discusses how events such as technological advancements and demographic changes can precipitate market bubbles, and how these bubbles are reinforced by media coverage and 'new era' economic thinking. The book also explores psychological anchors and herd behavior, as well as attempts to rationalize market exuberance through theories like efficient markets and random walks. Shiller provides prescriptions for policy changes and investor strategies to mitigate the effects of speculative volatility.

#4452

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The Tyranny of Metrics

Jerry Muller

In this book, Jerry Z. Muller argues against the over-reliance on metrics, which he terms 'metric fixation'. He contends that this fixation can lead to the corruption of social processes, gaming of statistics, and a hyper-focus on trends that do not accurately reflect reality. Muller provides examples from education, healthcare, business, and public policy to illustrate how blindly following metrics can result in unintended and harmful consequences. The book emphasizes the importance of balancing metrics with human judgment and experience to ensure more accurate and beneficial decision-making.

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The Rise and Fall of American Growth

The U.S. Standard of Living Since the Civil War

Robert J. Gordon

The book describes the 100 years following 1870 as the 'Special Century,' a period of revolutionary growth and prosperity driven by innovations such as electric lighting, indoor plumbing, motor vehicles, air travel, and television. Gordon argues that this era of growth has been flatlining since 1970, marked by growing inequality, stagnating education, an aging population, and rising debt. He contends that the productivity growth of the past cannot be repeated and identifies several 'headwinds' that will continue to slow American economic growth. The book is divided into two main parts, covering the period from 1870 to 1940 and from 1940 to 2010, and includes detailed statistical analysis and historical anecdotes to support its arguments.

#68763

Unicorns, Hype, and Bubbles

Jeffrey Funk

Veteran technologist and author of Unicorns, Hype and Bubbles: A Guide to Spotting, Avoiding and Exploiting Investment Bubbles in Tech (2024) reveals the truth about tech bubbles and the devastating financial impact of the current AI bubble when it bursts!

Dr. Jeffrey Funk is a professor and consultant with a 40-year career focused on how new technologies emerge and diffuse. While teaching in Japan in the late 1990s and early 2000s, he was among the first to recognise the potential of smartphones. He worked closely with several Western companies to assist with their implementation of mobile technologies.

After moving to the National University of Singapore in 2007, his research on the economics of new technology led him to identify and become a critic of the "innovation slowdown".

Timestamps:

(00:00:00) – Preview

(00:03:35) – The AI Hype: How it all started.00:13:51 – Technical ignorance and narcissism produce delusional claims.

(00:19:36) – Media's role in perpetuating AI myths and fake valuations.

(00:24:03) – Is the current AI stock becoming a meme coin pump-and-dump?

(00:26:15) – Jeff's 40-year-old journey through multiple tech and financial bubbles.

(00:35:32) – Why businesses lost their AI investments with a 95% failure rate (MIT Research)?

(00:45:02) – Advice for young entrepreneurs involved in innovations. Don't overhype!

(00:53:32) – Tim's argument why understanding the wider world is critical for effective business tech.

(00:56:01) – Academia's wrong obsession with metrics.

(01:01:04) – Societal impacts and misinformation, and how the AI bubble plays a role.

(01:07:20) – The need for critical thinking for effective innovation, beyond mere numbers.

(01:19:49) – People's disillusionment with AI is getting worse

(01:22:22) – What will happen when the AI bubble bursts, and how bad will it be?

(01:33:31) – What will be the trigger point for the AI bubble burst?

(01:43:36) – The true meaning of an "industrial revolution" and if AI fits the definition.

(01:48:57) – Is the AI bubble killing entrepreneurship?

Episode Notes & Citations:

⁠⁠⁠⁠https://ceoretort.com/podcast/guest/2025/09/08/jeffrey-funk-the-ai-bubble-will-end-in-financial-catastrophe/

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