Stop me if you’ve heard this one before: An important industry takes on an enormous amount of leverage, grows exponentially, and then—one day, when it can’t pay its debts—is deemed too big to fail and bailed out by the government.
It’s a tale as old as capitalism, and it may be unfolding again in the AI space.
Driving the news: OpenAI’s CFO Sarah Friar raised eyebrows last week when she suggested it would be useful for the U.S. government to “backstop” investments in AI infrastructure. Friar later backtracked on her comments, clarifying that she wasn’t proposing government support for OpenAI specifically, only that the government could play a role in advancing the sector.
- In response to the kerfuffle, the Trump administration’s AI czar, David Sacks, posted on X that “there would be no federal bailout for AI,” but OpenAI’s CEO, Sam Altman, says he has discussed with the U.S. government the possibility of federal guarantees for loans to build chip factories.
- Meanwhile, more AI companies are starting to take on debt to fund capital expenditures rather than using their own cash flow, which adds to the risk of an eventual blow-up.
Why it matters: The industry may be laying the groundwork for a government bailout down the line if it can’t find a way to turn a profit.
- AI researcher Gary Marcus predicts that AI companies will push for government support on national security grounds, using arguments similar to Nvidia CEO Jensen Huang’s warning last week that China was on track to “win the AI race.”
Zoom out: AI is already turning into a political lightning rod as data centres drive up electricity costs and workers fear the impact on their jobs. That will make any bailout for the sector a very tough political sell.—TS