AI crash warning: deeper than the dot-com collapse?

A looming AI crash could inflict more damage than the 2000 dot-com collapse, warns Aswath Damodaran, finance professor at New York University. His concern hinges on two pillars: record levels of debt financing vast physical infrastructure and business models that aim to automate entire job roles with uncertain societal fallout.

The weight of bricks over bytes

Unlike the late-1990s software boom, today’s AI sector is erecting data centers, semiconductor fabs, and fiber networks on borrowed money. Damodaran argues this capital-intensive shift magnifies risk; when sentiment sours, the unwinding of heavy leverage can ripple far beyond equity valuations. “We’re not just talking about Pets.com losing a few million,” he notes. “We’re talking about billions locked into concrete and steel.”

Jobs in the crosshairs

Even if AI delivers on its promises, the professor questions the sustainability of models that seek to displace human labor at scale. The profit motive may accelerate automation, but the social contract around work remains unclear. “Replacing entire jobs is not a feature—it’s a bug in the business plan,” Damodaran cautions, pointing to volatile public sentiment and potential policy backlash.

A measured correction or systemic shock?

Industry watchers are split: some see a healthy shakeout ahead, while others fear cascading defaults in overleveraged startups and legacy firms alike. Damodaran’s warning underscores the need for stress tests that account for both financial leverage and labor-market disruption. Until those tests are run, the sector remains flying partly blind.

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Source: The Decoder. AI-assisted editorial synthesis — TechnoExpress.