A1 Technology bubble

Topic

The Information/Knowledge sector is the domain of activities based on data, software, and intellectual property—a realm where the marginal cost of reproducing an additional unit is near zero and network effects are strong, meaning each new user can increase the product's value for everyone else. This combination paves the way for the tech bubble: if scaling costs remain flat while network effects promise a "winner-takes-most" scenario, it becomes relatively easy to justify market valuations based on the promise of future scale—even before fundamental cash flows back them up.

The trigger for the tech bubble is precisely this market valuation—sustained far above sustainable fundamental cash flows. As long as the gap between market price and actual output is viewed as a reasonable bet that near-zero marginal costs and network effects will eventually materialize those cash flows, the sector operates within its normal parameters; however, when that gap fails to close and the promised innovation does not materialize, the overvaluation is exposed.

Within the framework of cross-cutting drivers, Information/Knowledge is also the sector where Automation/AI has the most profound impact. It does not merely alter production methods within the sector; it changes *what* is produced, as artificial intelligence itself determines the content of the entire sector. This intense level of disruption fuels the tech bubble: the more automation is expected to redefine the sector's nature, the easier it becomes to justify valuations that anticipate this transformation—well before actual cash flows confirm it. When the overvaluation is finally corrected, what adjusts is not the marginal cost of reproduction or the network effects themselves—those properties of the rail do not disappear—but rather the gap between market valuation and the fundamental cash flows that the anomaly itself had created.

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