The current artificial intelligence (AI) boom is often compared to the dotcom bubble, but some analysts argue that the more accurate parallel is with the U.S. shale revolution. While the dotcom era ended in collapse and lost capital, the shale revolution transformed global energy markets even as many investors failed to profit.
The shale industry’s success came from advances in drilling and fracking that made the United States a leading oil and gas producer. However, increased productivity led to an oversupply, driving down prices and hurting investor returns. According to observers, AI may follow a similar path: rapid improvements in technology increase productivity and attract capital, but this abundance could limit profits for many participants.
"AI is tracing the same arc of abundance. Every new GPU cluster, every megawatt energised, every advance in quantisation or inference efficiency makes the system more productive. But productivity invites more capital, which risks overshooting demand. The lesson from shale is not that success evaporates. It is that success does not guarantee profits for all. There will be returns in AI; but only for those who sit inside the envelope now being constructed around it."
China’s role in AI development is likened to OPEC’s influence over oil markets during the shale boom. China has used strategies such as subsidized power and state-directed finance to gain ground in industries like solar panels and electric vehicles despite lacking key resources at first. In AI, China aims to offer low-cost solutions domestically while exporting cheap inference services abroad—a move that could pressure Western companies.
"For AI that means subsidized power, cheap state-directed finance, Ascend-class accelerators, and permissive open-source models. The aim is both defensive and offensive: ensure sovereignty at home; and set the global clearing price from below abroad."
In response, Western countries are building what some call a "technodollar envelope." This approach involves government certification of providers handling sensitive workloads, long-term procurement contracts guaranteeing demand for certain firms, and prioritizing reliable power sources for data centers—especially low-carbon options like nuclear or hydroelectricity—to support climate goals alongside security needs.
"This envelope is not purely American. It must hold together a coalition. Washington cares most about security and scale. Europe and Canada insist on carbon intensity and climate alignment. Japan and Korea emphasise supply chain resilience and domestic champions."
These policies are designed to protect select companies within allied nations from market volatility or foreign competition by ensuring steady demand through public contracts or regulatory requirements.
For investors considering where to allocate funds amid this technological transformation, analysts suggest focusing on infrastructure tied closely to policy priorities—such as reliable power supplies—and supporting major cloud service providers likely to consolidate their position as regulated utilities within this emerging framework.
"Artificial intelligence will succeed spectacularly, just as shale did. But this time, there will be returns, not for everyone, but for those who position themselves inside the technodollar envelope, where policy, power, and productivity intersect."
The cycle outlined predicts an initial period of high profits due to scarcity of resources (like GPUs), followed by cost reductions driven by Chinese competition; then consolidation among Western firms supported by government procurement; ultimately resulting in a regulated oligopoly controlling critical infrastructure.