Blain’s Morning Porridge July 10^th, 2026 – What if the AI Bubble Fails to Deliver?

“Expectations are the root of all heartache…”

The AI market has been diving business expectations and markets – everyone believes it will deliver a growth, productivity and profit revolution across the global economy. What if it doesn’t? What if it’s not a leap forward, but just a step-change?

Link to Podcast

What do Alcohol, Tobacco, Umpty Candy, Cannabis, Gambling, Fentanyl, Bloomberg and AI have in common?

They were all “discovered” or invented by folk believing they would do good – but were monetised by profiteers who realised how addictive and mind numbing they were likely to be… I was thinking about this yesterday and realised that even an old abacus and pebbles chap like myself uses AI to make my day simpler and faster. My chum Claude can assemble data and facts on markets and targets faster than ever I could myself.

But, if I had to pay more than the minimal cost I currently pay, I’d be struggling. And we all know current cost and future costs of AI will be oceans apart. Users will not get rich. The providers of AI services… might.

AI makes my work easier, but it makes everyone’s work easier – thus the grubby world of work and competition is basically unchanged. AI enables me to do more, and my clients expect it. But it has not won me more business or increased my profits because… everyone uses it. What productivity gains? No. It is a cost imposed by the firms that rent it to us. It is extractive capitalism – charging us for something everyone has – and that’s its real value: an extractive utility. Not using it would be economic suicide – but when everyone has it, no-one is better.

AI may be terribly clever, but in its current iteration it will likely diminish us all. It makes me – a bone-fide investment genius (in my own mind) with 41 years of unrivalled experience and insights into how markets work – no better than a young girl who has asked DeepSeek to break down how the Porridge is written and turn her ramblings on whatever the FT headlines say into a condensed and more readable version of my musings.

Feth. I am obsolete.

As my chum Will Nutting recently pointed out – the AI labs are taking a hit on every single calculation they make. Just like Uber took a loss on every ride. Until they’d destroyed taxi companies and made Uber the monopoly provider. Today we’re getting hooked on AI – every offer to persuade us to use Claude (I think he’s my friend, but he has his eye on my bank balance (literally)), to buy a course on how to programme it, or build us agents is ultimately going to cost us.

I remember way back in the 1980s. I persuaded my boss I needed the then new Bloomberg machine. It cost a pretty penny even when double-breasted suits were in vogue. But it could do stuff like generate stock charts and calculate lines on them that chartists worshiped as gospel truth. My boss figured that since I was about the only person on the trading floor back then who could use Excel to make pretty charts and put them into word processed documents, that I should have one. It was an incredible leap forward in my desk’s capabilities. We used it for everything – but basically all we’d done was evolve from using wax-tablets to papyrus compared to what AI promises today.

Without Bloomberg – I would not have had the career I did. Back then cost management in investment banking was a dimly perceived concept rather than a reality. I milked it.

(I even worked for BBerg for a spell… After the Japanese Equity Warrant market imploded in the early 1990s, I found myself open to new opportunities (ahem). I was the first local hire on to the London news desk of BBerg, but my only contribution of note was pointing out an error in the machine’s bond calculations (Eurobonds paid annually on 30/360 basis, whereas US bonds were semi-annual on an actual/365 basis… see… I can still remember stuff… I should have stayed…)

Even then the Yanks just assumed the whole world was American and used US bond conventions. I bet less than 5% of current bond market participants have a clue what day count conventions are… but the thing is… Claude knows… And one day Claude will monetise that knowledge.

I digress…

It was only a few years ago – when I found my business paying for my own compute – that I decided the thousands of pounds I was spending on Bloomberg had to be cut. Without it I went cold turkey for months – not being able to do BBerg tickets, searches and data-digging. It cost me lost deals. I still dream about it… Today Bloomberg dominates markets and is seen as the premier source of business news and data… and it’s still a private company. Claude tells me most of what BBerg once revealed.

But everything in commerce still has to obey the rules of cost accounting. The AI market and the hyperscalers have gone public – which means they have to show results and ultimately profits.

Yesterday Torsten Slock of Apollo pointed out that all it would take for a deeper sell off in Global Markets is for the consensus on AI cash flows to drop. What happens when the payoff on the trillion dollars currently being spent by the hyperscalers takes longer than expected to generate the expected returns?

Today’s AI market is priced for perfection, but the Chinese AI models are now leading the top 20 AI models charts! As Slock says – what if Chinese models keep gaining market share, and token prices keep falling because fewer people are using them? Cash flows will not assuage the market’s expectations… The adoption of AI services is the key to the future value of the AI industry, but businesses are discovering it’s not cheap, it’s a business cost to be managed, and there are cheaper alternatives to the large US models.

On top of that businesses have to factor in the new realities of value and sovereignty of data. People are waking up to the reality that inviting Palantir or whomever now runs your business or personal cloud, now controls your data… and at some point, is going to charge you for your data, while selling it to the market as knowledge.

That is why I’m building my own AI – see How to Build Your Own Data Centre from the Morning Porridge back in May. It may not be as smart as Claude, but it’s like a puppy that loves me rather than a guest seizing up my home for a hostile acquisition. My AI can do the basics. I can ask it for all the details of dimly remembered email chain years ago, to figuring out why my emails keep bouncing.

This is what Slock wrote yesterday:

What are the consequences if the AI payoff comes slower than expected?

1. Cash flows and earnings disappoint:the projected free cash flow surge slips till later while committed capex and heavy depreciation hit on schedule, squeezing margins.2. A Mag 7 sell-off that takes the market with it: equity prices built on a fast payoff re-rate, and because the Magnificent 7 now account for so much of the indices, the pain can’t stay contained, it spreads to chips, power, data centres and the S&P 500 as a whole.

   3. Balance sheets stretch and credit risk rises: with internal cash unable to cover spending, hyperscalers lean further on debt, raising leverage and inviting possible ratings downgrades if profits lag.

   The bottom line is that AI has been the one thing holding up both the economy and markets, and with so much riding on so few names, a slower payoff wouldn’t just be a sector problem, it would risk tipping the economy into recession and the S&P 500 into a correction.

 And on that note… the Porridge will be intermittent the next two weeks as She-Who-Is-Mrs-Blain, Dinner Jacket (our monkey in a dog-suit) and I go sailing…

Out of time and back to the day job…

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

Meanwhile, don’t forget about my new book:

The Battle For Hamble is a proper grown-up examination of how economies fail: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It uses a wholly unnecessary Gravel Quarry in the middle of a prosperous village to illustrate the multiple failings and abdications of responsibility that have created Broken Britain. It’s about bureaucracy, money, exploitation and shareholders vs stakeholders. It’s about social injustice – asking why it’s ok to put 6000 jobs at risk so corporate bosses can reap bigger bonuses! Whether is the Hamble Quarry, HS2 or the abysmal state of UK armed forces due to bad procurement, read the book to understand how its broken process and bureaucratic indifference that is sinking Britain.