Mar 17, 2025 | 7 min read
The Top Line Summary
AI investment is at historic levels, with tech giants committing over $340 billion in 2025—surpassing the GDP of many countries. While AI is transformative, history warns that not all investments will pay off.
Past investment booms—from railways and telecoms to the dot-com era—show a familiar pattern of optimism, overinvestment, and eventual correction. The biggest winners are often those providing infrastructure (the "picks and shovels") rather than speculative ventures.
AI is different from past bubbles in key ways—it is already generating real economic returns, and major players are funding investments with earnings rather than excessive debt. However, a shakeout is inevitable, and only the strongest companies will emerge successfully.
AI Investment: A Boom Unlike Any Other—Or Just Another Cycle Waiting to Repeat?
Artificial intelligence (AI) is experiencing an unprecedented investment surge, driven by the belief that it will reshape industries, redefine productivity, and unlock trillions of dollars in economic value. Tech giants are at the forefront of this push—Amazon alone is set to invest nearly $100 billion in AI infrastructure this year, with Microsoft, Alphabet, and Meta committing billions more. In total, AI-related capital expenditures are expected to surpass $340 billion in 2025, a sum greater than the entire GDP of countries like Portugal or Greece.
Exhibit 1: Annual capex* in $bn for the big-four AI hyperscalers with 2025 forecasts based on company guidance and Deutsche Bank estimates
Source: Bloomberg, Deutsche Bank
Note: Microsoft based on Deutsche Bank coverage analysts' estimates, others on company guidance. *includes leases for Amazon, Microsoft and Meta.
The sheer scale of these investments raises a crucial question: Is AI a transformative force that justifies this level of spending, or are we witnessing another classic investment mania—one that will end like so many before it?
History provides us with a map of past booms—railroads, telecommunications, aviation, and even the internet—that can offer valuable insights into AI’s trajectory. Some of these investment waves led to lasting economic revolutions, while others collapsed under the weight of speculation and overreach. Which path will AI take?
History Repeats: The Rhythms of Investment Booms and Busts
Throughout history, transformative technologies have ignited waves of investment, often following a familiar pattern: early optimism, surging capital inflows, inevitable excess, and then a moment of reckoning. The most famous cycles tell us that even the most revolutionary technologies are not immune to market cycles.
Take the Canal Mania of the 1790s, when Britain, in the midst of the Industrial Revolution, saw a rush to build canals to transport goods more efficiently. In just a few years, capital raised for canal projects surged 30-fold, and investors piled into speculative ventures. While the best-planned canals remained critical infrastructure, many projects were redundant or unprofitable. When the bubble burst, canal stocks collapsed, but the most valuable networks remained in use for decades
Exhibit 2: UK share price index in the 18th century canal boom and bust
Source: Bank of England: A millennium of macroeconomic data, Deutsche Bank
Fast forward to the Railway Boom of the 1840s, and the pattern looks strikingly similar. The promise of fast, reliable transportation led to a frenzy of railway company formations, with investment reaching levels equivalent to 7% of Britain’s GDP. Many speculative ventures failed, but railroads ultimately redefined global commerce
Exhibit 3: UK share price vs. Railways and Canal Index. An epic early capex
Source: Finaeon, Deutsche Bank
This pattern has repeated over time: in the gold rush of the 19th century, where those selling mining tools often made more money than the miners; in the telecom investment boom of the 1990s, when companies laid billions of dollars' worth of fiber-optic cables, much of which sat unused for years; and in the dot-com bubble, when investors overestimated how quickly the internet would turn into a money-making machine.
AI, in many ways, mirrors these past booms, combining elements of genuine technological transformation with hype-driven capital flows. The question is whether it will follow the pattern of railways and the internet—ultimately transformative, despite early excess—or whether it will see a more painful unwinding, like telecoms and overbuilt infrastructure projects.
Why AI Might Be Different This Time
Unlike past speculative bubbles, AI investment is not purely driven by future expectations—it is already delivering tangible economic returns. According to forecasts, AI monetization is expected to exceed $153 billion in 2025 and skyrocket to $1.1 trillion by 2028.
Companies investing in AI aren’t just betting on future potential; they are already seeing productivity and efficiency gains, especially in enterprise software, cloud computing, and automation. Some of the most striking projections include:
Enterprise AI software spending will reach $401 billion by 2028.
Consumer AI-driven industries (e-commerce, advertising, search) will generate $680 billion by 2028.
AI infrastructure investments (GPUs, data centers, cloud computing) will exceed $300 billion annually by 2025.
Exhibit 4: AI Capital Expenditures and Revenue Forecast
Source: Morgan Stanley
There’s also another key distinction: Unlike many past investment bubbles, AI’s growth is not being fueled by excessive debt. Many of today’s largest AI investors—Microsoft, Amazon, and Alphabet—are using corporate earnings, not borrowed money, to fund their expansion. This significantly reduces the risk of a financial collapse if AI investments take longer than expected to pay off.
Lessons from Telecoms and Airlines: Growth vs. Profitability
But while AI investment may be built on a stronger foundation than past booms, it is not immune to the classic mistake of overinvestment. The telecom sector in the late 1990s offers a cautionary tale.
During the dot-com boom, telecom companies poured more than $210 billion into fiber-optic networks, expecting internet traffic to double every 100 days. But by 2005, 85% of those fiber lines sat unused as demand lagged behind projections. The crash that followed led to widespread bankruptcies, including WorldCom and Global Crossing.
Exhibit 5: NASDAQ composite index - The boom and bust
Source: Bloomberg, Deutsche Bank
The airline industry offers another lesson. Despite being a technological revolution that transformed global travel, commercial aviation has seen multiple investment booms and busts—from the Jet Age of the 1950s to post-deregulation startups in the 1980s. Investment cycles were often driven by excitement rather than sustainable profitability, leading to frequent bankruptcies.
Exhibit 6: S&P 500 and S&P 500 Airlines price index (log scale).
Source: Finaeon, Deutsche Bank
AI could follow a similar pattern: transforming the world, but not necessarily rewarding all investors equally.
Where Does Government Investment Fit In?
Historically, some of the most successful large-scale investments—those that avoided extreme boom-and-bust cycles—were government-led. Projects like:
The U.S. Interstate Highway System (1950s-60s)
The Apollo Program (1960s)
The European renewable energy transition (2020s)
These initiatives were funded with public money, allowing for long-term planning without pressure for immediate financial returns.
In contrast, today’s AI boom is largely private-sector led, which increases the risk of volatility and over-optimism.
AI: The Road Ahead
So, will AI be a revolutionary investment that reshapes industries for decades to come—or will it follow the fate of past speculative cycles, facing painful corrections before finding its true place in the economy?
The reality is likely somewhere in between.
✅ AI is transformative—but not all investments will succeed.
✅ The winners will be those who survive the inevitable shakeout.
✅ History shows that even game-changing technologies take time to mature.
The challenge now is to separate the signal from the noise, identifying which AI investments will stand the test of time—and which are built on overinflated expectations.
The Bottom Line
AI is undoubtedly a transformative force, but history reminds us that not all investments in groundbreaking technologies lead to sustainable profits. While railroads, telecoms, and the internet revolutionized industries, they also saw boom-and-bust cycles that reshaped the landscape, leaving only the strongest players standing.
Unlike past speculative bubbles, AI investment is already delivering real economic value, with revenues projected to surpass $1.1 trillion by 2028. However, as with previous tech revolutions, not every AI company will thrive, and a shakeout is inevitable. The real winners will be those with strong business models, efficient capital allocation, and the ability to translate AI capabilities into sustainable growth.
For investors and businesses, the challenge is clear: navigate the AI wave with strategic foresight, avoiding hype-driven speculation while capturing long-term opportunities.
At Israilov Financial, we help clients make sense of the shifting investment landscape, identifying opportunities in emerging technologies while managing risk. Whether you’re evaluating AI investments, assessing sector exposure, or refining your long-term strategy, our team provides personalized, research-driven financial planning to help you stay ahead. Schedule your free discovery meeting today and let’s explore how to position your investments for long-term success in the AI era.
IMPORTANT DISCLAIMERS
Past performance is no guarantee of future returns
The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. It is not possible to invest directly in an index. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.
This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities.
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The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Israilov Financial LLC cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Israilov Financial LLC does not provide tax or legal advice, and nothing contained in these materials should be taken as such.
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