I was there for the dot-com burst. Here's how the AI bubble will pop.

Getty Images; Tyler Le/BIAs often happens in the early buildout of a new technology, a fierce argument is raging about whether the AI spending boom is a rational investment or a speculative bubble.The answer, very likely, is… both.AI will radically change the economy and society — just as the internet, computers, cars, trains, canals, electricity, and other technologies did.And…Much (most?) of the money being invested right now will probably be lost — just as much of the money invested early in the prior booms was.The early AI boom will likely end the way most prior eras have ended — with a gigantic bust that clobbers the first wave of companies and investors, followed by a long boom that helps build huge new companies and transforms the way we live.Personally, I hope there's never an AI bust. It would hurt millions of people, including me. AI investment accounts for a huge share of US economic growth (a third, by some estimates), so a bust will likely trigger a bear market and major recession. I don't run an AI company or trade frequently, but I do own stocks and benefit from a healthy economy. So, if there's an AI bust, I'll get poleaxed along with everyone else.But having had a front-row seat for two big booms-and-busts — the Internet (1995-2002) and the Great Financial Crisis (2002-2009) — I'm fascinated by the parallels (and differences) with this one. So, while I hope the AI boom will never turn to bust, I will also keep analyzing out loud.Growth and leverage — we've got 'em!Most speculative bubbles share two key elements:An exciting innovation or product that leads to enormous demand ("Growth")Debt, credit, circular financing, or other leverage that amplifies this demand ("Leverage")In the internet bubble, the growth was real. Millions of new people connected every month, and usage went through the roof. For five years, insatiable demand drove astonishing fundamental growth at dozens of companies. (Amazon, AOL, Yahoo, Exodus, Level 3, Worldcom, Cisco, Juniper, etc.)The "leverage" was also clear — especially in hindsight. Companies borrowed hundreds of billions of dollars to build out telecom networks and buy new gear. Internet service providers raised tens of billions in equity investments. For five years, these factors combined to produce one of the biggest tech booms the world had ever seen. But by 2000, the supply of internet products and services finally caught up with demand, rising interest rates raised the cost of borrowing, and hundreds of IPOs and follow-on offerings sated demand for internet investments…The music stopped. Growth slowed. And leverage reversed.Similarly, in the years leading up to the Great Financial Crisis, low interest rates and mortgage innovation fueled an extraordinary housing boom. But by 2008, there were no more lending standards to relax, and anyone who wanted a house had one. Returns for lenders and investors plunged, and stretched borrowers could no longer make payments. Demand and leverage dropped. Once again, it was "look out below."These same dynamics are now repeating themselves with the AI boom.AI companies are growing faster than any in history.Look around, and you can see clear evidence of both amazing growth (demand) and leverage in our current tech-fueled frenzy.Take Anthropic's new coding tool, Claude Code, which ignited spectacular demand and helped the company's revenue explode to $4.8 billion in the first quarter of this year. In the second quarter, revenue more than doubled, to $11.6 billion. Based on July's results, Anthropic is now generating an astonishing $65 billion in annualized revenue. That's up a breathtaking 7x from last year. No company in history that I know of has ever grown like that. The Wall Street Journal also reports that Anthropic is now profitable. This nukes the previous (widespread) naysaying that AI economics don't work and the leading model companies "can't make money" and will go bankrupt. Anthropic may not stay profitable. But it is now.Someday, AI supply will catch up with demand, and the financing leverage will max out.Even OpenAI, which lost focus and fumbled its early industry lead, is now reportedly doing $40 billion of annualized revenue. That may not be apples-to-apples accounting with Anthropic, but it's still a colossal number. Despite its revenue growth, OpenAI, in my view, is on track to become the Netscape of the AI era: The company that kicked off the boom and, for a brief moment, became synonymous with it… but then missed a turn and failed. OpenAI's sequential growth slowed radically in the second quarter. Revenue was up "only" 18%, to $6.7 billion from $5.7 billion in the quarter before, the Journal reports. This is the equivalent of a racecar swerving off the track while another car blows past. But the growth of both companies shows that the underlying user demand for AI is astonishingly strong.The question now is how long Anthropic's growth can continue like this. If the company's run-rate is $65 billion now,

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