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It's back again, that bubble talk.
The AI bubble is a bubble and it will pop.
There's definitely overinvestment and probably investment in the wrong areas.
I think the problem right now is that the fear piece is very high and the understanding of where that's going to go is not very strong.
But is the AI bubble bursting?
This is World Business Report from the BBC World Service.
Yes, I'm Ed Butler, and today we are looking at this sell-off that's hitting US markets for the third day in a row this week.
Major tech firms like Amazon and Alphabet all down.
Bitcoin falling sharply.
What's going on?
Also, we examine the latest legal moves against Nike for allegedly discriminating against white people, and why floral bouquets of banknotes are all the rage in Kenya.
It has been another tough day across global markets.
Today it's the third in a row.
Alphabet and Google parent falling after saying it plans to nearly double its spending.
Today, Bitcoin faces pressure amid a sell-off in tech stocks.
It looks like this tech sell-off has been around the world.
What we found out is crypto's got Trump.
The key question is what's next?
Precious metals, industrial or for that matter, even energy commodities have taken a dive.
Silver price continues to fall this week.
Oil has fallen for the first time in three days after Yes, as those news reports feverishly confirm.
US tech stocks have been falling heavily on Thursday as weak jobs data has piled further pressure on a market already reeling from a big sell-off in the software sector.
The tech-heavy Nasdaq composite fell 1, its third consecutive session of losses and its worst week since US President Donald Trump's Liberation Day.
Tariffs rocked markets last April.
Amazon has been leading the way, it seems, falling 9 in after-hours trading after releasing its quarterly results.
To understand what exactly is going on.
I'm joined by Kerry Leahy and economist Columbia University in New York, Kerry hi.
What have we been seeing today?
What's leading the way in catching your eye?
Well, it's been pretty ugly across the board in tech land.
There's been this nervousness that's been evidenced by more and more people that there is probably overinvestment in AI and it may be not well directed.
And it may be much like what was going on in other bubbles, where we spent a lot of money but didn't get a lot of return.
And the people that make money in these kinds of meaningful changes aren't the first in, but the second or third in.
It's the old remark about That Henry Ford did not invent the automobile.
He marketed it to death.
So I think that's the nervousness going on there.
It's probably even more than that, because we got some soft US employment figures regarding job openings and also the fact that –.
Firms announced some fairly sharp increases in long-term layoffs.
So those things bother the market, too.
Maybe the market overall economy is weaker than we think and we're spending all this money on technology if we're Amazon, and that's not a good recipe for a good trading day.
Yeah, I mean, Amazon is an interesting one, isn't it?
It comes up with results.
They look pretty solid.
But it also said it was going to spend what 200 billion further on AI investments, data centers, that kind of thing.
And the market really didn't like that.
That kind of totally seems to echo what Alphabet was saying 24 hours ago.
And both times the market has reacted negatively to what, on the face of it, looked like reasonably solid results.
That's right.
I can't say with any great conviction that we've now hit the peak and the bubble is about the birth.
But I think any sense in the marketplace is that even though your company is doing great, making a lot of money, We're afraid that any sign that you surprise us on the upside, which normally would be if you're spending money on capital, that's a good thing.
But if you're overdoing it, we want to back away from your company.
So that may be kind of like the first sign of a company that's going to get whacked by Wall Street, having a good year generating a lot of profits, but they may be overinvesting.
That's a big difference from the – bubble in 2000 on the internet and dot-com bubble, because those companies were making money.
So one of the great ironies of all this is that we're knocking down companies that are really good at making a lot of money, whereas we were knocking down companies in 2000, but they weren't making any money.
Kerry Leahy, for now, thank you.
Let's turn to our other guest tonight, Daron Asamoglu.
He's of MIT in Boston.
He's made precise predictions on the future course of the so-called fourth industrial revolution.
This relates to the AI wave sweeping many industries.
He's also the winner of the 2024 Nobel Prize for Economics.
So that's a pretty good reason to speak to him as well.
Professor Asamoglu, thank you for being here.
You've argued that current investment levels could result in a potential AI winter.
I think I'm quoting you right.
I mean, is this the AI winter?
Has it begun?
No, I'm not sure that it has, but the weaknesses that several people have been identifying for a while are there, and they do become more apparent during such sell-offs.
I think the major problem is that, while AI remains a very promising, very versatile technology, The huge amount of investment that we are seeing is not translating into revenue.
And it's not clear how it will translate into revenue, because the kinds of applications that would make businesses adopt AI with large workforces are not there yet.
Right.
So we're wasting resources.
Companies are doing that.
I mean, is this NVIDIA, Google, Amazon wasting it?
Or is it those small and medium firms throwing all their savings at AI, hoping to displace their workforce?
I think both are going on.
If you look at the smaller and medium-sized enterprises, they're not very rapid in AI adoption.
They are dipping their toes in and often they don't know what to do with it, because the current AI models don't come with a user manual about how to transform specific businesses.
And for many small and medium-sized enterprises, they don't have the resources to hire the top engineers to integrate and use these AI models.
But when you look at the other companies, of course, they're in different positions. buckets.
NVIDIA will keep on making money so long as demand for GPUs But companies such as not publicly listed, but OpenAI, Anthropic or publicly listed companies like Microsoft, Alphabet, Meta, they need to turn their huge investments in cloud computing, data centers, GPUs.
They need to turn those into revenue.
And it's not clear how they're going to do that.
Yeah, the market does seem very split on this.
I mean Anthropic launched two sets of new software technology, made two sets of announcements and it caused the kind of ripples of panic in the market of a different kind this week.
It seemed like all kinds of other industries falling away because they thought gosh, this is transformative, disruptive tech that's going to completely throw existing legal firms and various other forms of traditional financial services in the air.
So here are the two sides of the coin that need to be reconciled or it's a paradox.
On the one hand, we're seeing tremendous advances in the foundation models and the capabilities of these models, at least under controlled circumstances.
And that's fueling optimistic takes on artificial general intelligence and huge gains.
It's also fueling a kind of winner take all race, because there is the belief that if we are so close to artificial general intelligence or other big takeoff, then whoever gets there is going to have an advantage.
So every company wants to be there first or in the first two or something.
So that's fueling all the investments.
And Anthropic's amazing success with Opus 45 and the applications for coding et cetera are just one aspect of that.
But on the other hand, we're not seeing the kinds of applications that people in healthcare education accounting, marketing law can take and apply in their businesses and increase profits or productivity.
So those are the two sides of the coin that need to be reconciled.
And that's the source of the paradox.
If you want to be an optimist, you can look at the advances in these models and how they are beating certain benchmarks and say okay, we're just blazing ahead.
Or if you want to look at the applications and what businesses are getting from AI at the moment.
You look at it and you say I don't see much there.
Professor Asimoglu, thank you very much indeed.
If people say your dreams are crazy, if they laugh at what you think you can do, good.
Stay that way.
The words there of Colin Kaepernick.
He's the outcast American football player, the civil rights activist who was known for refusing to stand during the US national anthem in NFL games back in 2018.
The words you heard were featured in a Nike ad campaign of that time.
Nike were, of course, vocal supporters of that athlete.
And this prompted a backlash from many conservatives, who argued that consumers should boycott the footwear giant.
Well, now, some seven and a half years on, Nike is under investigation by the Trump administration.
This is over claims that it has hidden documentary evidence of its policy to discriminate against workers.
White workers.
The allegation centres on the company's application of so-called diversity, equity and inclusion policies DEI, policies that have been widespread across corporate America looking to promote the interests of female workers, minority ethnic groups and others.
Advocates for DEI see this move against Nike as part of a systematic government campaign.
I spoke a few months ago to Dominic Midori-Davis.
She's a journalist specialising in the area.
She said companies across the board have, since the Trump administration began, been forced to scale back that diversity initiative.
Walmart stepped back, Harley-Davidson, Meta, Amazon, Google, Target.
Everyone's adjusting their languages.
So there's a lot of changes happening behind the scenes.
There were already conservative groups that were suing companies, suing grant programs.
We had one in venture capital that was suing against a grant program for Black women founders.
I know that PayPal is getting sued.
They made a commitment to Black and Latino founders a few years ago, and they're being sued.
Law firms, big companies, they were all being targeted by conservative groups.
Well, one of those groups applying the pressure is the Free Enterprise Project.
Its executive director is Stefan Padfield.
He's, among other things, an activist shareholder who's actively pressing firms to scale back their DEI policies, which he sees as a curse on corporate culture.
I asked him what he knew of the latest moves against Nike.
So this most recent incident was the Equal Employment Opportunity Commission's Taking Nike to court.
Apparently, they had made some requests, sent a subpoena asking for information going all the way back to 2018 related to the extent to which the company was using quotas.
You know proudly affirming their intent to effectively discriminate in the name of anti-discrimination.
And apparently the company has not complied with all of those information requests.
So the EEOC is now taking them to court.
Right.
So obviously Nike denies this.
It says the action is a surprising and unusual escalation.
It says it has had extensive good faith engagement on the inquiry and has shared thousands of pages of information.
That is obviously going to be argued in the courts.
But your general contention here is that DEI, which Nike takes part in but so do hundreds of other major US corporations, is itself discrimination.
That's right, starting with just flat-out quotas.
So, for example, when a corporation says our workforce will reflect the demographics of the communities we work in, the only way you get there is by setting numbers.
So if the community you work in has...
12 percent blacks, then you're going to say that your workforce is going to have 12 percent blacks.
The only way you get there is by discriminating on the basis of race.
Right.
So you're basically just saying that any kind of target setting to balance out the color and gender mix in your workforce that is racism or sexism, but of an inverted kind.
That's what you're arguing.
Right.
I would call it neo-racism, neo-sexism.
Yes.
See, of course, people who support DEI say it's exactly the opposite is true.
We are supporting a leveling of the playing field, a playing field that has discriminated historically against both women and people of color.
Well, I know that that's what they're going to say, but here's the problem with that.
To the extent we have workforces that are not perfectly reflective of the demographics of society.
We have very clear explanations for that.
We have real pipeline problems.
We have, for example, testing discrepancies that explain large portions of the discrepancies in the workforce.
We have personal choices, the majors that women choose, the choices to stay home with kids.
On the other hand, we have expressed commitments to discriminate going back for years.
So when you put those two together, what you get is a serious problem in terms of saying oh, all we're doing is addressing systemic racism.
Actually, what you're doing is you're ignoring the reality of pipeline problems and you're undermining the effectiveness of your workforce by promoting hiring and retaining people on the basis of something other than their merits.
And you're discriminating against white males.
So it just doesn't stand up to scrutiny.
And we're seeing that play out now.
Right.
So you'd rather see pipeline problems dealt with by the government by investing heavily in, let's say, black and Latino populations at school age?
And that'll fix that problem.
No, not at all.
I don't want any discrimination on the basis of race and sex.
How is it sorted out then at pipeline level, if it's not going to be sorted out at boardroom level, which is what you're fighting here?
No, what you do is you say, let's raise the test scores on a colorblind basis, right?
Here in America, people are graduating high school.
They can't even read at a fourth grade reading level.
So if you make a commitment to raise the test scores on a colorblind basis across the board, without all the problems that come with express discrimination on the basis of race and sex,
People will see this, of course, as just a vindictive retaliation by the Trump administration for the Kaepernick campaigns back in 2018.
You mentioned 2018.
That was when they endorsed and supported Colin Kaepernick, after he took the knee and so on, was kicked out of the NFL.
Do you think this is just retaliation against Nike, because they are the most conspicuous supporters of DEI?
I don't think it's retaliation.
I mean, retaliation suggests it's an action that has no sound foundation.
I think Nike is being targeted because they have been one of the most egregious in terms of their commitment to discrimination in the name of anti-discrimination.
And so what's going on behind closed doors in the Trump administration in terms of whom they go after?
I don't know the answer to that, but I assume they've sent these sort of subpoenas to a, And I wouldn't be surprised at all to find out that, despite Nike's protestations to the contrary, they have been withholding information and are dragging their feet.
So I don't think there's anything retaliatory about it unless we call holding people accountable for illegal discrimination to be retaliation.
So this is just the beginning in terms of going after big companies.
That would be my expectation.
I think we're going to see more and more of this.
There needs to be a reckoning.
This discrimination that has been overtly and expressly pushed for the last few years must be brought to account.
The view there of Stefan Padfield.
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Japan heads to the polls in a few days after the Prime Minister, Sanae Takeuchi, recently called a snap election.
This just months into her first term.
With the rise in the cost of living front of mind for many voters, Phoebe Amoroso has been looking at how the economy is shaping this campaign and what people want from their next government.
Here in Tokyo, the streets are bustling with weekend shoppers.
But people are streaming past both sales advertisements and political campaigners.
Prime Minister Sanae Takeuchi has called a snap election just three months into her term, asking the public for a clear mandate on her leadership.
For many here, the economy is a key issue. as the cost of living continues to rise.
I asked people for their thoughts.
People are suffering greatly from the rise in prices.
Low-income earners are suffering even more from the rising prices, and I'm not sure how the government will respond.
They say they're providing a lot of subsidies but it's still not trickling down to the lower classes.
Prices are definitely rising, but it also feels like people are just generally more depressed.
Things don't feel very hopeful lately.
With the upcoming election, is there anything you'd like the next government to do?
I want the government to do something to do with the economy, like getting rid of the consumption tax, or doing something that actually reaches ordinary people.
I really want them to put proper policies in place.
Hiroyuki Okano has been working in the restaurant industry for more than 30 years.
His latest restaurant in West Tokyo is just over one year old.
He runs the place by himself, serving up a mix of French and Japanese-style dishes, including claypot rice.
But the cost of rice has risen sharply since late 2024.
It's not just rice that's going up.
Everything is.
Rice prices have certainly gone up.
But meat, vegetables and fish prices have all gone up by one and a half to nearly two times.
So the impact is that if we don't raise prices, we won't make a profit.
But if we do, customers won't come.
So we can't raise them.
As a new restaurant, you want to build relationships with your customers, but the cost of ingredients is also rising.
How do you balance that?
Right now we don't have many customers, but we want to attract good customers, so we're offering very low prices.
My food cost percentage is about 60%.
Normally you're supposed to keep it at around 30%, but right now it's costing me double that.
Still, I keep going like that to earn customers' trust.
But it means I'm basically not making any profit at all.
It's been exactly a year now, but I haven't been in the black even once.
I've been in the red the whole time.
And even so, I still have to pay consumption tax.
Honestly, the tax system is just the worst.
Down south in Okinawa, Japan's poorest prefecture, businesses are also feeling the pinch.
I don't think economic climate will get any better in the future.
That's the voice of Miyako Nimi.
She runs a small coffee shop in Naha, Okinawa's capital.
Especially now with the week in Yen, we've become so dependent on tourists.
So I'm really worried about what will happen when the number of tourists decreases and we're left with only Japanese people.
Every day I'm thinking, what will tomorrow be like?
Will there be a lot of tourists?
Will there be a few?
I worry every day.
The fears there of one coffee shop owner in Okinawa in Japan, ending that report by Phoebe Amoroso.
You can hear more on Japan's election in today's edition of Business Daily on the BBC World Service.
Now China could be derailing tens of billions of dollars worth of investment in Panama as it looks to retaliate to a court ruling in that Central American country.
The ruling has voided a contract for a Hong Kong-based company called CK Hutchison Holdings Limited to operate two ports along the strategic Panama Canal.
Beijing says that Panama could pay a heavy price for its legal moves.
It's asking state firms to halt talks over new projects in Panama, as well as stepping up inspections on Panamanian imports.
It's requesting that shipping companies consider rerouting cargo through other ports.
Edgar Urrutia is a business advisor in Panama and he's a past president of the Logistics Business Council.
The ruling basically says that there are some eight clauses of the contract that are unconstitutional, that are against the constitution of Panama.
This is what they rule after months deliberating about this contract with Panama Ports Company.
With the Hutchinson Holdings, the Hong Kong company.
It is, it is, yeah.
So they were saying that that was unconstitutional.
That contract had been there for a while, hadn't it?
Would it be fair to say that the United States had been pressing to have this contract voided and to have Hutchison Holdings, a Hong Kong company, kicked out of Panama?
And it could be some pressure from the Americans.
But this is something that has been also from Panama from a couple of years already.
The government's been clearly stating that there was a need to review this contract.
So it seems to be something that just came up, but it's not.
And the Americans has also put some pressure on it.
Beijing isn't happy, though.
It says Panama could pay a heavy price for basically blocking one of its firms from control of the transit through the Panama Canal.
I could understand that position from the government but at the end of the day, this is a legal decision from the Supreme Court.
Well, there's a rule of law here and we have to obey that.
And they said that they will go to a retraction in the ICC.
Beijing clearly thinks this is a political move.
How expensive could it be if it carries out its threats to inflict sanctions, effectively blocking transit of goods through your canal?
It could be very expensive, taking into consideration that most of the cargo that comes through the canal about 70 of the trade that goes through the canal comes mainly from China.
That's tens of billions of dollars of trade every year.
Oh, yeah.
And it's Chinese products that are being sold to the U.S.
If they stop that, they will stop their own product selling in the US.
So at the end of the day it's like a sandwich.
We're the ham in the sandwich, again, for this situation, not asked by us.
But again, any sanctions they might implement in Panama, it will be very difficult for us.
But at the end of the day, Panama is also very important for them because they will be sanctioning themselves themselves, because most of the cargo is their products, which they will not be selling.
So it's not as easy as it sounds, because it's something that they need to sell and they need to go through the canal in order to go to the east coast of the United States.
Do you believe the threats coming from Beijing?
I think it's playing hardball, mostly because, at the end of the day, they've been using the canal for decades, of course, and it's a very effective route that they use.
And I don't think it's an easy way out not to use the canal or not to come to Panama, or to stop their contracts or businesses in Panama, because it's not that they need us, but somehow it's the way to get to their final destinations.
The Panamanian business advisor, Edgar Arrutia.
Now, it's only nine days till Valentine's Day, folks.
And if you mark this day, you might be thinking, what should I be getting my special someone?
Well, if you're in Kenya, there's only one thing you can get them.
Well, you can't get them.
I'm sorry.
The country's central bank has banned people from using banknotes to make floral-like bouquets and decorations.
This has become a big trend.
To make these cash bouquets, notes of different colours and value tend to be rolled together and fastened to make them look like flowers.
But the Central Bank of Kenya says that creators are defacing the currency.
Angela co-owns a gift shop and a flower shop and she says her money bouquets were one of her most popular orders.
For the money bouquets, we used to get around 15 to 20 thereabouts.
And it depends.
You can get a bouquet worth 1000 bob broken down into 50 notes, 10000 broken down into 500, 200 notes and 1000 notes.
It's a week or two actually before Valentine's.
So this allows and gives us time to actually come up with ideas on how we can actually do these bouquets.
The thoughts of Angela in Nairobi.
And that's World Business Report.
Thanks for listening.
Available now on The Documentary from the BBC World Service.
I'm Emily Wither and I've been speaking to a former Christian minister from LA who fell in love with the teachings of the Sufi mystic Rumi.
It took him on a spiritual journey to move across the world to Konya in Turkey and join Rumi's followers in the Mevlevi Order.
Listen now by searching for The Documentary wherever you get your BBC podcasts.
