Is the AI Boom Heading for a Bust? What the Dot-Com Bubble Tells Us
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Welcome to Tech News Briefing. It's Wednesday, March 12th. I'm Shara Tipkin for The Wall Street Journal.

Artificial intelligence is fueling a boom in data centers, but some traditional storage companies are scrambling to adapt to AI's needs. How do hard drive makers keep up? Then we explore what the dot-com bust can teach us about today's AI boom. WSJ reporter Rolf Winkler tells us all about bubbles. But first, AI requires a lot of data to work, and that information has to be stored somewhere.

Data centers last year spent an estimated $40 billion on storage devices, according to the consulting firm IDC. That's expected to grow by 31% over the next two years. Storage companies like Seagate hope data centers choose their hard disk drives. But the industry is facing an uncertain future as competing solid-state drives get faster and cheaper.

Here to explain is WSJ reporter John Keilman. John, hard drives have limitations like moving parts, but they're also fairly cheap. Solid state drives or SSDs are faster, but they cost more. What's fueling this push to have better storage options? Well, the push is coming from the demands of AI, which require stupendous amounts of data to train their models.

And at the same time, all of these companies that have invested in data centers do not want to add to their footprint, to their square footage, to increase their ability to store data, which means all of these devices that are in a data center need to be able to hold more and more data. So both on the hard disk drive side and on the solid state drive side,

Both of them are trying to increase the capacity of their individual devices as much as they can. You spent a lot of time talking with Seagate. What is it doing to make sure hard drives stay relevant? So Seagate has spent more than 20 years, and not just them, other folks in the hard drive industry as well, but they are sort of first to market with it. What they have done is come up with something called heat-assisted magnetic recording technology.

And what that does is it uses a laser that is smaller than a grain of salt to apply a nanosecond of heat to a bit. And the reason they need to do that is because these new materials that they're using are

that they can make smaller and smaller and smaller. They are so magnetically powerful that you basically have to weaken their magnetism for a tiny portion of time so that the magnet can flip it up or down. And so with that, Seagate just started shipping a single hard disk drive that could fit in the palm of your hand, and it holds 36 terabytes of data.

And they think they can get to 60 terabytes within the next couple of years. And they think upwards of 100 terabytes in a single drive is possible before they need to start perhaps moving into different types of technologies. How will these changes impact data storage? What these innovations mean for the hard drive industry is that they're still in the game. And the more that they can store at a sort of economically efficient manner, the more

the more sort of indispensable they make themselves and they can sort of put off that day, if it ever arrives, in which they become obsolete. That was our reporter, John Keilman. Coming up, today's tech market is drawing some comparisons to the dot-com bust. What can we learn from the early 2000s? That's after the break.

With leading networking and connectivity, advanced cybersecurity and expert partnership, Comcast Business helps turn today's enterprises into engines of modern business. Powering the engine of modern business. Powering possibilities. Restrictions apply. 25 years ago this week, the dot-com era hit its peak and then it collapsed. Pets.com, Webvan, and other new internet companies went bust.

Today's AI boom is drawing some comparisons to the dot-com bubble. WSJ tech reporter Rolf Winkler is here now to talk about the similarities and the differences. Rolf, why are people comparing today's market to the dot-com bust? Probably just because there's a huge amount of investment going into a technology where the return is not yet clear.

People are really excited about AI. There's a lot of really promising opportunities there. And you can see a world 10 years from now, 15 years from now, where it changes everything, assuming that technology continues to progress. But right now, we're spending hundreds of billions of dollars on technology.

basically GPUs, graphic processing units, NVIDIA chips to fill out these cavernous data centers to power AI models that are cool and advancing, but we're not really sure how we're going to use them all just yet. Is there revenue behind all this investment that justifies the investment?

Not yet. When you think about bubble, like I think that's bad. But you actually mentioned that there are good bubbles that fuel rapid adoption of revolutionary tech. And then there are bad bubbles. Could you explain a little more the difference between good and bad bubbles? This is just sort of a fascinating thing I have learned about in recent years talking to experts. And they'll say, look, there are revolutionary technologies that have happened in history forever.

canals in the 1700s, railroads in the 1800s, electrification in the 1900s, and the dot-com boom. These things led to speculative bubbles where people were so excited. They're like, oh my God, electrification will change everything. It really did, but it took longer to establish itself than maybe the

all the early excitement. And so for all of these things, the early excitement can overshoot. But what it also can do is it can be an organizing function. It can bring a lot of people together. It can lead to a lot of capital investment. And basically a whole bunch of people end up marching in a direction because they believe in a technology. And even if there's a big speculative bubble and it crashes...

It's a productive technology, something that adds to the economy's productivity. And in that way, still takes over. It takes more years than maybe people projected at the beginning. And so you get that kind of crash, but a rebound. Now you compare that, that's a good bubble, as some experts have told me. And AI would seem to fit that. We're investing in

productive assets that could deliver a very amazing future. Now, there's bad bubbles, obviously the housing crisis. Housing's great, but overbuilding real estate bubbles, that's not something that is going to lead to a productivity boom later. So that can be a bad bubble. What are some examples of companies that went bust but influenced products and services we still use today? What's funny is two of the most famous dot-com flameouts, Pets.com and

and web van, right? Delivering pet food to your door and delivering groceries. And they were widely mocked at the time and they achieved big valuations and

Look at Chewy today, Instacart. Collectively, the two companies are worth $25 billion doing exactly the same thing. Pets.com and Webvan had the right idea. They were just ahead of their time. Yeah, just too early. Another company you talk about is General Magic. Tell us about that. In the early 90s, you had this group of people get together that basically built the first smartphone. But the problem was in the early 90s, there was no internet.

really, of course there was an internet, but Netscape hadn't been invented yet. So there was no web browser. People, regular people were not using the internet. There was not much content. We were all on very slow dial-up modems and interactive touchscreens had not been invented. All of these things had not yet happened to make smartphones useful for consumers. It doesn't mean they weren't really smart and ahead of their time. And so by the time

Steve Jobs releases the iPhone 13 years later. Responsive touchscreens are invented. The internet is widely used. Broadband is a thing. All of this, people are using the internet widely. Batteries are smaller. Batteries are smaller. Flash memory is cheaper. All these things make the phone possible. Obviously, chips. So what's really ironic is all of the alums that came out of General Magic that have helped power

The smartphone revolution, a couple names, Tony Fidel goes to Apple. He helps invent the iPod and later the iPhone. Andy Rubin, who founded Android, the world's largest mobile operating system. And then another one, John Andrea, he was working on AI agents. He now runs AI at Apple. That idea was 40 years ahead of its time. Totally. What do investors and experts think will be the kind of winners and losers of this current market that we're in right now? It's so hard to say.

NVIDIA is a winner because picks and shovels, I mean, who won in the gold rush? Levi Strauss won, selling everybody jeans and whoever sold the picks and shovels. It wasn't necessarily the gold miners. NVIDIA is winning because everybody has to buy its chips to put in these data centers to power their models. But the question is, is that productive? Is that going to lead to

AI products? Maybe, but maybe not soon. Maybe the most amazing ones are still going to take 10 years. That was our reporter, Rolf Winkler. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer Catherine Millsop. I'm Shara Tipkin for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.

With leading networking and connectivity, advanced cybersecurity and expert partnership, Comcast Business helps turn today's enterprises into engines of modern business. Powering the engine of modern business. Powering possibilities. Restrictions apply.