CounterPunch Exclusives

CounterPunch Exclusives

Does US AI Depend on Big Companies Throwing Money in the Toilet? The Chinese Competition

Still from Ghost in the Shell. Manga/Anchor Bay.

Here are the price-to-earnings ratios as of Friday, June 19. At 37.16, the average increased slightly over last week.

Most of us tend to think that the people controlling billions, or even hundreds of billions of dollars, at major corporations have a pretty good idea of what they are doing with their companies’ money. But that clearly is not always the case.

For example, in 2000, Time-Warner, which was at the time the largest media company in the country, effectively sold itself for nothing to AOL. The sale went through just two months before the peak of the 1990s tech bubble and the beginning of the crash. AOL was one of the high-flyers of the bubble, with a market capitalization of more than $200 billion, which would be around $400 billion in today’s dollars.

AOL paid for Time-Warner with $165 billion of its own stock. Shortly after the merger, the stock of the combined company plunged to roughly what would have been the value of Time-Warner’s stock if it remained an independent company. AOL’s business was adding virtually nothing.

There are numerous other stories of extraordinarily bad business judgement from the tech bubble era. As I’ve mentioned before, many companies discovered that adding “dot.com” to their name was an effective way to juice their stock price.

Bad business judgement did not go out of style with the collapse of the tech bubble. Meta lost as much as $80 billion pushing its Metaverse, which it largely abandoned at the end of last year. There is some question as to how much of this is actually a loss, since some of the spending may ultimately pay a dividend with AI, but it’s clear a large share of this investment was seriously misdirected.

Is the AI Spending Party Over?

This background is worth mentioning when it comes to the AI bubble, since a key question is this: How much are businesses willing to pay for AI? Until recently, AI enthusiasts were touting the........

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