The Upside of Tech Bubbles: Building Tomorrow's Infrastructure
Why Smart Entrepreneurs Love Tech Bubbles
I started my career in finance studying market crashes - from tulip bulbs to housing bubbles. One trend I noticed is that behind every "irrational" bubble was rational infrastructure that transformed society. Even when investors lose money, society often wins big. Let me show you what I mean.
The Historical Pattern:
1840s: The Railway Bubble built Britain's transportation backbone
Over £69 million (£7 billion today) poured into British railways in 1847 alone
Stock prices crashed 85% by 1850, and investors lost everything
BUT Society Won: Britain created 6,000+ miles of rail infrastructure that became the backbone of the Industrial Revolution
2000s: The Dot-Com Crash created our digital foundation
NASDAQ rose 582% before crashing in 2000
$5 trillion in market value vanished overnight
BUT Society Won: Technology companies developed global fiber optic networks and data centers enabling our current digital world
2024: Today's tech giants are pouring unprecedented money into AI
Now we're seeing this pattern repeat with AI, but with an interesting twist. Unlike previous bubbles where companies competed, today's tech giants are collaborating.
Microsoft: $13B in OpenAI
Amazon: $8B in Anthropic
Nvidia: Stakes in OpenAI, Perplexity, AND Mistral AI
Why Are Competitors Working Together?
Because building modern AI requires five essential pieces:
Specialized chips (mostly from Nvidia)
Massive computing power from cloud providers
Billions in funding
Top research talent, and
Lots of training data
No company has all five pieces. OpenAI needs Microsoft, Microsoft needs Nvidia's chips, everyone needs data and talent. If any piece disappears, many AI companies would stop working.It's not just cooperation - it's survival in an industry where going it alone is impossible.
What Happens Next?
When billions flow so freely between competitors, it's a sign that either we're building something revolutionary - or we're in a bubble. History suggests it's probably both.
Some AI companies will fail. Stock prices will crash. But just like with railways and the internet, we'll get something valuable out of it:
Massive AI compute infrastructure
Breakthrough algorithms and research
New tools and platforms that transform business
"Bubbles are like forest fires. They clear out the deadwood but also spread seeds for new growth." - William Janeway
Your Next Move
While investors chase valuations, entrepreneurs should focus building their businesses on this new infrastructure. Just as Amazon used dot-com era infrastructure to change retail, tomorrow's breakout companies will use today's AI investments to transform industries. The next unicorn might be someone combining OpenAI's models to solve healthcare, or using Nvidia's chips to revolutionize manufacturing.
Instead of asking "Are we in a bubble?", ask yourself: "What will you build on top of what this investment leaves behind?"
Those are my Thoughts From the DataFront
Max
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