AI Hype Faces Investor Doubt as Chip Stocks Fall

Paul Krugman argues that while recent AI systems demonstrate impressive capabilities, the technology may not automatically deliver large economic returns. He contends that heavy AI capital expenditures were only justified if (a) AI yields big economic payoffs and (b) first-movers can capture those returns; competition from lower-cost, lighter-weight models—notably from Chinese firms—could erode those gains. Krugman cites the decline in Korea’s KOSPI index (a semiconductor-heavy benchmark) as evidence of waning investor enthusiasm for AI-related capex, and notes that the drop does not necessarily signal a U.S. recession because much equipment is imported. He illustrates AI image recognition using Claude to show technological progress but warns that impressive capability does not guarantee sustained investor returns.