Now, the word from Wall Street that Washington needs to read…

Amid all the hyperventilating about eye-popping A.I. company valuations and the seeming insanity of the current investment cycle, old Wall Street hands might feel something tickling in the back of their brain—a memory from the dawn of the internet age, when a group of buzzy companies built the fiber-optic network carrying trillions of bits and bytes across the country that we now take for granted. Needless to say, those internet infrastructure companies were a huge hit on Wall Street. In 1998, Global Crossing went public at a valuation of around $5 billion, and rocketed to a peak valuation of around $50 billion in 1999 and early 2000. In 1996, McLeod USA went public at a valuation of roughly $1 billion, and three years later, my friends at Forstmann Little, the now-defunct buyout firm, made a $1 billion investment in the company in exchange for a 12 percent stake at a roughly $8 billion valuation. By the first quarter of 2000, McLeod’s valuation peaked at around $27 billion.

I could go on and on. Wall Street loved these companies, including Winstar, XO Communications, PSI Net, 360 Communications, Viatel, etcetera. All of them were desperate for capital—both debt and equity—and the Street was only too happy to oblige. I remember, because I was in the room for some of this theater. Estimates vary, but at their peak, sometime in the first quarter of 2000, the combined market capitalization of these so-called emerging telecom companies was something like $3 trillion. But, not surprisingly, the vast majority of them eventually crashed and burned, either getting rinsed in a full-fledged bankruptcy proceeding, through a major debt restructuring, or from being scooped up by an O.G. telecom company.

The moral of the story, of course, is that Wall Street is often quick to fall in love with the new, shiny thing (think of all those underwriting and M&A fees!) only to misjudge the valuations, the cost, the demand, the management—pretty much everything. And yet, without all those fiber networks and all that eviscerated capital, we likely wouldn’t be able to doomscroll, stream our favorite shows on our pocket computers, or text one another endlessly. In other words, despite hundreds of billions of dollars in losses, the assets that remained proved to be essential infrastructure.

Is history repeating itself with the massive capital expenditures now flowing freely into the A.I. boom? Will the so-called hyperscalers and neoclouds, with their gargantuan valuations and insatiable demand for capital, end up like the Global Crossings, McLeods, and XOs of a generation ago? Is the smart money waiting on the sidelines for the hype cycle to subside—or crash and burn—giving them the chance to pick up the assets for pennies on the dollar? Some contrarians on Wall Street certainly think so.

We are currently in the uber-hype phase, with some valuations heading into the trillions of dollars. OpenAI is already valued at $850 billion, and will be past $1 trillion once it likely goes public later this year. Anthropic, which now seems to occupy pole position among enterprise clients, is valued at $965 billion (and raised a fresh $65 billion earlier this week), and will also surely hit $1 trillion or more once it goes public. SpaceX is not an A.I. company, but it does have an “A.I. segment,” thanks to its acquisition earlier this year of X/xAI, which generated $3.2 billion in revenue in 2025 and a loss from operations of $6.3 billion. Still, the company is expected to be valued at as much as $2 trillion when it goes public in a few weeks. Meanwhile, Alphabet is already valued at $4.6 trillion; Nvidia at $5.1 trillion; Microsoft at $3.2 trillion; and Meta at $1.6 trillion. You get the idea.

Naturally, everyone on Wall Street—and beyond—wants to know how long the good times will last. Last November, in a Substack post, the journalist Derek Thompson wrote about news reports “filled with widespread fears that America’s biggest corporations are propping up a bubble that will soon pop.” He went on to compare the current A.I. hype cycle to the railroad infrastructure boom-and-bust of the second half of the 19th century. “A.I. is already transforming America in a similar fashion, driving overall economic growth and powering the stock market to all-time highs,” he wrote. “As a share of U.S. G.D.P., the A.I. build-out is on track to exceed every major technology since—you guessed it—the railroads.” Thompson is not alone in making the comparison. Michael Hartnett, the chief investment strategist at Bank of America, also likened the A.I. economy to “the biggest bubble since the railroads.”

In December, Oaktree Capital Management co-founder Howard Marks wrote a missive with the headline, “Is It a Bubble?” Marks, one of my heroes on Wall Street, said that he isn’t a stock market investor or a “techie,” but rather a student of human behavior who knows how forgetful people can be when yet another get-rich scheme materializes. “One of the most interesting aspects of bubbles is their regularity, not in terms of timing, but rather the progression they follow,” he wrote. “Something new and seemingly revolutionary appears and worms its way into people’s minds. … The early participants enjoy huge gains. Those who merely look on feel incredible envy and regret and—motivated by the fear of continuing to miss out—pile in.”

John Kenneth Galbraith, the great economic historian, also addressed “the extreme brevity of the financial memory” in his masterwork, A Short History of Financial Euphoria. “Past experience,” he wrote, “is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.” Warren Buffett touched on this concept in 1999, while writing about the amazing development of the combustion engine and the automobile. “If you had seen at the time of the first cars how this country would develop in connection with autos, you would have said, ‘This is the place I must be.’ But of the 2,000 companies, as of a few years ago, only three car companies survived,” he wrote. “So autos had an enormous impact on America but the opposite direction on investors.”

There are plenty of more contemporary skeptics. On May 26, Ed Zitron, the outspoken A.I. critic, wrote an essay titled “The Revenge of the Business Idiot,” in which he argued that “A.I. is a perfect storm of failed concepts and organizations, and the apex of the Era of the Business Idiot, an epoch where we’re ruled by people so thoroughly disconnected from the actual workforce that it was inevitable that a technology would be created specifically to grift them.” Similar warnings of excess have come from such Silicon Valley venture capital stalwarts as Michael Moritz and Bill Gurley, who was notably a little muted during his recent appearance on the All-In podcast.

Thompson summed up the concern well in his November essay. “I am not rooting for a bubble, and quite the contrary, I hope that the U.S. economy doesn’t experience another recession for many years,” he wrote. “But given the amount of debt now flowing into A.I. data center construction, I think it’s unlikely that A.I. will be the first transformative technology that isn’t overbuilt and doesn’t incur a brief painful correction.”

Unfortunately, we are still coming up on the phase of excess where the individual investor gets immolated by the Wall Street hype machine. We have yet to see the I.P.O.s of SpaceX, OpenAI, Anthropic, and numerous other A.I.-related companies, but many of these are illusory, short-term plays for quick riches. And, once again, the head fake will work because investors seem to have no memory for the harsh lessons of the past. At the same time, others understand the moment we are in and will stay away until the bubble deflates, at which point they will pounce on the valuable infrastructure that still exists as the exuberant capital structures get washed away. Only they will have paid pennies on the dollar—and be on their way to making another fortune. (This is not investment advice.)

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