Hello world. I’m an unemployed ex Big Tech software engineer with 25 years of experience in the technology industry. And lately, I’ve been looking at the AI industry and thinking: Is it just me, or is this bubble looking extra bubbly? Because something feels different. The AI industry is still burning through enormous amounts of money. The companies at the center of the AI boom continue to require staggering amounts of capital to build data centers, buy GPUs, train models, and keep everything running. But suddenly, the tone seems to be changing. We’re seeing some of the most insanely valued companies in history preparing to go public. We’re hearing calls for government support. And we’re seeing AI executives who spent years predicting an imminent AI driven jobs apocalypse suddenly sounding a little more... cautious. Hmm. That’s interesting. To me, this looks a lot like peak bubble behavior. It reminds me of what happens near the end of every major financial mania. Everyone starts looking for the next investor willing to buy into the dream before the music stops. Or, as we like to call them in the financial world: Bag holders. But why is this happening now? I think there are several things happening beneath the surface that are starting to expose a fundamental problem with the current AI boom. And before the AI true believers come after me with pitchforks and flaming GPUs, let me be clear. I believe AI is going to be incredibly important. I just don’t believe we have Artificial General Intelligence. Not even close. We Don’t Have AGI. We Have Very Expensive Probabilistic Parrots. Yes, AI has gotten dramatically better. We have agentic systems. We have tool integrations. We have models that can write code, analyze documents, generate images, conduct research, and occasionally pretend to be a competent junior employee. But fundamentally, today’s large language models are still probabilistic systems predicting what comes next based on patterns learned from enormous amounts of data. They can do remarkable things. But they still struggle with consistency, reasoning, context, hallucinations, and knowing when they don’t know something. And because of that, I’m skeptical that today’s AI is suddenly going to invent the next Warp Drive and increase global productivity by 10,000 percent. Claude is not going to wake up tomorrow and announce: “Good morning, humans. I have solved faster than light travel. Also, I fixed the economy.” Sorry. But there is one thing AI could potentially do extremely well. It could replace human labor. And I think that’s the gigantic bet hiding underneath the entire AI boom. The AI Industry Has Made a Trillion Dollar Bet on Human Labor Think about the economics. The AI industry has attracted and consumed enormous amounts of capital. And whether we’re talking about investor money, corporate spending, or debt financing, the numbers are staggering. The basic premise behind much of this investment is that AI will eventually generate enormous profits by automating human work. Especially white collar work. And that’s the only economic story that really makes sense to me. Because if you are spending hundreds of billions, or potentially trillions, building the infrastructure required to run AI, eventually you need to make that money back. And you can’t do that by selling a $20 ChatGPT subscription to every person on Earth. You need something much bigger. You need to capture a meaningful percentage of the economic value currently generated by human workers. And that’s why, for years, we’ve heard predictions from some of the biggest names in AI about massive numbers of white collar jobs being automated. Software engineers. Lawyers. Accountants. Customer service representatives. Consultants. Researchers. Basically anyone who spends their day sitting in front of a computer. The logic is straightforward. If AI can replace millions of expensive human workers, the companies providing that AI can potentially capture a gigantic amount of economic value. And if you believe the more extreme AI predictions, we’re talking about tens of millions of workers eventually being replaced. That’s a massive opportunity. Except... There’s a problem. It’s not happening fast enough. The AI Productivity Revolution Is Taking Longer Than Expected For all the talk about AI replacing human workers, we’re not seeing anything remotely close to the scale necessary to justify the industry’s enormous financial commitments. We’re certainly not seeing millions upon millions of white collar workers being replaced every year. And my own experience as a software engineer has given me a front row seat to the problem. AI can be incredibly useful. But getting useful work out of AI is not as simple as typing: “Hey Claude, please build my billion dollar software company.” Believe me. I’ve tried. The problem is that getting AI to produce consistently high quality work still requires a surprising amount of human intelligence. You have to manage context. You have to understand the limitations of the model. You have to work around gaps in the training data. You have to check its output. You have to catch hallucinations. You have to design workflows. And when the AI inevitably does something completely insane, you have to figure out why. In other words, AI doesn’t necessarily eliminate human work. Sometimes it just changes the kind of human work you’re doing. And this isn’t just a problem in software engineering. We’re seeing similar challenges in other areas that were supposedly easy targets for automation. Customer service, for example, has long been considered one of the obvious use cases for AI. But when AI agents make mistakes, misunderstand customers, or confidently give completely incorrect answers, companies have a problem. There have already been cases where AI automation initiatives had to be rolled back and human workers brought back into the loop. Oops. Turns out customers don’t particularly enjoy being gaslit by a chatbot. Who knew? The bottom line is that AI simply isn’t replacing human workers at the scale the industry’s financial model appears to require. And I think the AI industry is starting to realize this. Which brings us to another problem. The Open Source AI Problem The American AI industry has been built around enormous closed models. ChatGPT. Claude. Gemini. These companies control the models, the infrastructure, the data, and the computing resources. And the plan, at least in theory, is pretty familiar. Spend an insane amount of money. Build the best technology. Gain market dominance. Kill the competition. Then raise prices and enjoy enormous profits. Silicon Valley has used this playbook many times before. But there is one big problem. The rest of the world is not sitting around waiting for America to establish an AI monopoly. Open source AI models have gotten incredibly good. And companies outside the United States, particularly in China, have made remarkable progress developing powerful models with significantly fewer resources. These models can be downloaded. They can be modified. They can be run on your own infrastructure. And increasingly, they are becoming good enough for many real world use cases. That’s a huge problem for the AI industry’s dream of monopoly profits. Because if a company can download a capable open source model and run it locally for a fraction of the cost of paying an American AI company every time an employee asks a chatbot to write an email... Well. That’s not exactly great news for the people trying to build a trillion dollar AI toll booth. And this brings me to another trend that I think is even more important. The Rise of Local AI You don’t necessarily need a giant data center to run AI anymore. With techniques like quantization and distillation, massive frontier models can be compressed into smaller models that can run on increasingly affordable hardware. Your desktop. Your home server. Your laptop. Your own private infrastructure. And this has two enormous advantages. First, you don’t have to keep paying a Big Tech AI company every time you want to use the model. Second, your data doesn’t have to leave your computer. For businesses and individuals who care about privacy, that’s a pretty big deal. And as local models become more capable, something else happens. The value of premium AI models starts to decline. Why pay $100 a month for the world’s most powerful AI model if a local model running on your own hardware can handle 95 percent of what you actually need? It’s the same problem that open source software created for proprietary software companies. If the free alternative is good enough, the premium product has to work very, very hard to justify its price. And that brings us to the fundamental problem. The AI Industry Needs Productivity Gains. Fast. The AI industry has spent an enormous amount of money based on the assumption that AI will eventually generate enormous economic returns. But eventually isn’t good enough. The debt has to be serviced today. The data centers have to be paid for today. The GPUs have to be purchased today. The employees have to be paid today. The electricity bill, unfortunately, does not accept payment in future AGI promises. So the industry needs massive productivity gains. And it needs them soon. But what we’re seeing instead is a technology that is incredibly useful in some situations, moderately useful in others, and occasionally produces something that makes you stare at your monitor for five minutes wondering how a machine with a trillion parameters managed to screw up something a reasonably intelligent eight year old could have done correctly. That’s not AGI. That’s Tuesday. The technology will improve. I’m confident of that. But the question isn’t whether AI will eventually transform the economy. I think it will. The question is: Will it transform the ec