The ongoing Iran war has led many AI industry watchers and investors to start getting concerned about whether this conflict could push the industry over the edge and cause what many call “the AI bubble” to burst. Several developments have led these grim predictions to seem credible to many.
The first point of weakness is the huge power appetite of the AI industry. Data centers consume enormous amounts of energy, and their energy demand has led some communities to push back against the construction of these facilities in their backyard. Oil prices have skyrocketed as a result of disruptions to shipping in the Strait of Hormuz and attacks targeting energy infrastructure in not just Iran but the wider Gulf region.
If energy prices stay elevated or even rise further, it is likely to become very expensive to keep data centers operational. As these operational costs rise, the tech firms running those facilities could come under increasing investor scrutiny over the viability of the huge sums of money being pumped into AI projects. Such unease could trigger a major sell-off in tech shares, resulting in stalled industry growth.
Additionally, investors from Gulf countries have been pouring money into AI firms in the U.S. These inflows have helped and continue to help fund the ambitious plans of hyperscalers in the AI industry. As the war drags on, those investors could re-channel their resources into the domestic market to support lucrative ventures in the defense sector, such as in firms manufacturing war products like missiles, rockets, drones and other military hardware.
Once again, AI firms could find themselves running out of funds to run their operations, and that could trigger stagnation in the trajectory of the industry.
Other threats to the AI industry come from the supply chains of critical inputs like helium. Qatar produces approximately 33% of all the helium used globally, and the country halted production of this gas at the start of the Iran war.
As a result, the price of the gas has skyrocketed and there are concerns that even at those high prices, a time could come when firms are unable to access sufficient volumes of this gas. Without helium, AI chips cannot be manufactured, and that would pose an existential threat to the AI industry.
This ongoing war is bringing into focus the different vulnerabilities of the AI industry and the voices saying the AI “bubble” could burst are growing. AI hyperscalers like Meta Platforms Inc. (NASDAQ: META) are likely to find themselves fielding more queries about their contingency plans as this war drags on and economies around the globe struggle to function.
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