A century after investors poured fortunes into the transformative promise of electricity, a similar fervor now surrounds artificial intelligence. The global rush to capitalize on AI has inflated valuations and spurred massive infrastructure spending, drawing striking parallels to the Roaring Twenties. In that decade, electricity was the revolutionary technology, a “general purpose” force that, like AI today, promised to reshape every corner of the economy and society. The parallels are not just in the enthusiastic predictions, but also in the financial structures and speculative zeal that preceded a historic market collapse.
Understanding the boom and bust of the 1920s utility market offers a critical lens through which to view the current AI landscape. The electrification boom ultimately powered a century of industrial dominance for the United States, but not before a speculative bubble crested and violently burst, triggering the stock market crash of 1929 and contributing to a decade of global depression. Historians and economists now watch the AI sector and see familiar patterns: a world-changing technology whose immediate fundamentals are difficult to assess, vast capital inflows chasing future profits, and complex corporate structures that could amplify systemic risk. The lessons from that earlier technological revolution raise pressing questions about whether today’s AI enthusiasm is building toward a similar, devastating reckoning.
A Revolution in General Purpose Technology
In the 1920s, the New York Stock Exchange was dominated by talk of “high tech” investments in electricity. This was not merely hype; the technology was fundamentally altering American life. It powered factories, enabling new production techniques that allowed companies like General Motors to overtake competitors. It lit up homes, filled leisure time with radio broadcasts from companies like RCA, and accelerated the flow of information through faster printing presses. Investors saw an obvious economic game-changer that promised unprecedented automation and productivity. The excitement was global, with leaders from capitalist and communist nations alike declaring electrification a national priority.
Today, AI is cast in the same role. It is viewed as a foundational technology set to overhaul every industry, from transportation and medicine to finance and defense. This perception has ignited a global sense of urgency, driving trillions of dollars in investment. Historians note that bubbles are most likely to form around technologies dubbed “transformative” from their inception, because their ultimate impact is incredibly difficult to price correctly. The ambiguity surrounding AI’s future—whether it will achieve superintelligence or fail to meet its lofty promises—creates a fertile ground for speculative overvaluation, mirroring the financial environment of the 1920s.
The Architecture of a Speculative Bubble
The 1920s bull market was not built on industrial stocks alone; it was disproportionately driven by the soaring valuations of utility and bank stocks. Between 1923 and 1929, while industrial stocks quadrupled in price, utility stocks increased six-fold. This explosive growth was facilitated by specific financial mechanisms that encouraged leverage and consolidation.
Holding Companies and Highly Leveraged Growth
A key feature of the 1920s utility market was the rise of the holding company. Figures like Samuel Insull built vast, complex corporate empires by acquiring utilities across different cities and states. These holding companies, as opposed to the operating companies that actually generated power, used high levels of leverage—borrowed money—to fuel a furious pace of consolidation. By 1929, a handful of these holding firms controlled an estimated 80% of the electricity supply market. This intricate, debt-fueled structure created rapidly growing profits on paper, attracting waves of investors, but it also introduced enormous systemic risk, as the collapse of one part of the empire could trigger a cascade of failures.
Valuations Divorced from Fundamentals
The excitement around electricity led investors to pour money into utility stocks even when their underlying value was difficult to determine. By September 1929, utilities constituted 18% of the entire New York Stock Exchange. The RCA stock provides a stark example of the era’s speculation, rising 200-fold during the decade. This frenzy was further amplified by the widespread practice of buying on margin, where brokers lent small investors more than two-thirds of the face value of the stocks they were purchasing. With over $8.5 billion out on loan—more than the entire amount of currency circulating in the U.S. at the time—the market became a bubble where rising share prices were fueled not by profits, but by the hope of ever-higher prices tomorrow.
When the Market Power Went Out
The speculative fever that had defined the Roaring Twenties came to an abrupt and catastrophic end in October 1929. The utility sector, once the darling of the market, led the decline. The crash revealed the fragility of the leveraged financial structures that had been built during the boom, with devastating consequences for both investors and the broader economy.
The Great Crash and Its Aftermath
The Dow Jones Utilities Average, which had peaked at 144 in 1929, collapsed to just 17 by 1934. The fall of RCA’s stock was even more dramatic, plunging from a high of nearly $115 to just over $2.50 by 1932—a 98% decline. This implosion was a central element of the Great Crash, which erased approximately 90% of the stock market’s value by its trough in 1932. The ensuing Great Depression was marked by a banking crisis, widespread business failures, and a staggering rise in unemployment, which jumped from 3% to 25% of the U.S. workforce by 1933.
A Reckoning and Regulatory Reform
The collapse of the utility empires, most notably that of Samuel Insull, triggered a national outcry and a push for stronger government oversight. The scandal of Insull’s bankruptcy, which wiped out the savings of countless investors, prompted President Franklin D. Roosevelt to advocate for new legislation. In response, Congress passed landmark reforms designed to prevent a repeat of the disaster. The Securities Act of 1933 provided investors with greater protection, while the Public Utility Holding Company Act of 1935 broke up the massive holding company pyramids that had defined the boom. Once-exciting technology stocks became boring, regulated infrastructure assets, a transformation reflected in the humble “Electric Company” square on the original Monopoly board.
Modern Parallels in the AI Boom
The current AI landscape echoes the 1920s in several key aspects. The narrative of a transformative technology, massive capital investment in infrastructure, and questions about profitability create a sense of historical repetition.
An Insatiable Demand for Infrastructure
Just as the 1920s required a nationwide electrical grid, the AI revolution is built on a foundation of data centers and advanced semiconductors. The investment is staggering, with estimates suggesting that $1.5 trillion will be spent on AI worldwide this year, rising to $4 trillion in the near future. This has created a symbiotic relationship between AI companies and electric utilities, which are investing heavily to meet the projected surge in power demand from data centers. This dynamic raises the risk of stranded assets for utilities should the AI boom falter, directly mirroring how utility companies themselves were at the epicenter of the 1920s bubble.
A Disconnect Between Hype and Profit
A significant concern among analysts is that AI valuations are being driven by hype rather than solid financial fundamentals. Many leading AI companies are burning through cash at an astonishing rate. OpenAI, for example, generated substantial revenue in the first half of 2025 but still incurred billions in losses. This reliance on continuous cash inflows from market enthusiasm, without a clear path to profitability, is a hallmark of a speculative bubble. Much like the debt-financed ventures of the dot-com era and the leveraged utility holding companies of the 1920s, the current AI business models appear to depend on investor confidence that could prove fleeting.
Assessing the Risk of a Digital Downturn
If today’s AI market is a bubble, its bursting could have consequences that rival or even exceed previous tech-related crashes. The sheer scale of capital involved and the concentration of investment in a few mega-cap technology companies expose the entire economy to significant risk. An AI downturn would not only affect software developers and chip manufacturers like Nvidia but could also cascade to the electric utility sector and other industries that have made substantial, long-term investments based on AI’s projected growth. Some experts suggest that the pattern of collapse may not be as clean as the dot-com bust, but rather a messier, rolling series of declines as different facets of AI fail to deliver on their promise. However, history offers one final, crucial lesson. Even after the railway mania of the 1840s and the dot-com crash of 2000, the underlying technologies endured. They continued to develop, albeit at a more sustainable pace, and ultimately became integral parts of the economy. Should the AI bubble burst, the financial fallout could be severe, but the technology itself is likely here to stay.