Huge AI spending traps Big Tech in a ‘prisoner’s dilemma’

A top fund manager warns that Silicon Valley’s AI arms race is forcing companies to spend billions simply to avoid falling behind — even if it hurts them all.

Locked in the race

Tony Yoseloff, chief investment officer at Davidson Kempner Capital Management, says Big Tech has no choice but to keep investing heavily in AI.

Competing by fear, not by choice

Each company spends more because its rivals do — creating a costly cycle where no one dares to slow down.

The game-theory trap

It’s the classic prisoner’s dilemma: if firms cooperated, they could spend less and still win, but fear of losing drives everyone to overinvest.

Silicon Valley’s expensive gamble

Google, Microsoft, Meta, and Amazon are pouring unprecedented sums into chips, data centers, and research, inflating expectations across markets.

When giants move, markets follow

Because these companies dominate stock indexes, their behavior now ripples through nearly every investor portfolio, Yoseloff notes.

Lessons from past tech booms

Productivity gains from the PC and Internet revolutions took years to appear — suggesting today’s AI payoff may also be far off.

Patience required

Markets, however, act as though profits will arrive tomorrow, creating a dangerous mismatch between expectation and reality.

Warnings of an AI bubble

Analysts say enthusiasm has reached speculative levels, with valuations rising faster than real-world productivity.

Voices of caution

OpenAI’s Sam Altman admits investors are “overly excited,” while Bill Gates likens the hype to the late-1990s dot-com frenzy.

Bezos joins the skeptics

Amazon’s founder has also urged restraint, warning that runaway enthusiasm could end in painful corrections.

The paradox of progress

Big Tech’s smartest minds know the risks — yet none can afford to stop investing. The race continues, even if everyone loses by winning.

This article is made and published by Asger Risom, who may have used AI in the preparation