AI: The Beginning of a New Technology Revolution
We are living through one of the most significant technological revolutions in human history. But this isn't the first time. Using economist Carlota Perez's groundbreaking framework from her book Technological Revolutions and Financial Capital, we can understand the patterns that repeat across all great technological surges and use that knowledge to navigate our AI-driven future.
Author's note: In 2015 I asked Jerry Neumann, Venture Capitalist and NYU Professor, to give a talk at Transition. Transition was a customer conference we put on at Percolate to help people think through how technology was changing marketing. Sadly, the video is gone from YouTube but the notes from his talk are still up on his website. I want to thank Jerry for that talk and how it is still having an impact on how I think about technology.
The Pattern of All Technological Revolutions
For over 250 years, every major technological revolution has followed the same basic pattern. From the Industrial Revolution to the Internet, each surge follows a predictable cycle of innovation, speculation, crisis, and finally, widespread adoption that transforms society.
Carlota Perez, one of the world's leading experts on technological change, identified this pattern by studying five great technological revolutions. Her framework helps us understand not just what happens, but when and why it happens.
The Five Great Technological Revolutions
Click on any revolution to explore its pattern. Notice the recurring themes across centuries.
Pattern Recognition
Notice how each revolution follows a similar pattern: new core technology → infrastructure development → leading sectors emerge → financial speculation → productivity gains → social transformation. This isn't coincidence. It's the fundamental rhythm of technological change.
Understanding the Two-Phase Cycle
Each technological revolution unfolds in two distinct phases, separated by a turning point that often involves financial crisis and institutional change. Understanding these phases is crucial for navigating the current AI revolution.
The Two-Phase Pattern
Every technological revolution follows the same basic pattern: an installation phase driven by financial capital, followed by a deployment phase driven by production capital.
Installation Phase
Key Characteristics
- Technology experiments and early adoption
- Infrastructure building and investment
- Financial speculation and bubbles
- Disruption of existing industries
- High volatility and uncertainty
Historical Examples
- Railway mania (1840s)
- Electricity infrastructure (1880s-1900s)
- Dot-com boom (1995-2001)
- Current AI investment surge (2023-present)
Challenges
- Overinvestment and speculation
- Skills mismatches
- Institutional lag
- Social resistance to change
Opportunities
- Early mover advantages
- Infrastructure development
- New business model creation
- Talent acquisition
Most indicators suggest we're currently in the installation phase of the AI revolution. We see massive infrastructure investment, financial speculation, experimentation with applications, and disruption of existing industries (all classic installation patterns).
The Visual Evidence: AI Through the Perez Lens
These charts tell the story of our technological moment. Each data point reflects patterns Carlota Perez identified across 250 years of technological revolutions.
The Great Infrastructure Build-Out
Like railways in the 1840s and electricity in the 1880s, we're witnessing massive infrastructure investment that defines the Installation Phase.
Charts in this section:
What this shows:
AI datacenter investment (1.2% of GDP) approaching levels of major historical infrastructure buildouts like railways (6.0%)
Perez Framework Connection:
Classic Installation Phase pattern: Massive infrastructure investment comparable to railways and telecom revolutions
Charts in this section:
What this shows:
AI datacenter investment (1.2% of GDP) approaching levels of major historical infrastructure buildouts like railways (6.0%)
Perez Framework Connection:
Classic Installation Phase pattern: Massive infrastructure investment comparable to railways and telecom revolutions
Key Insights:
- •AI datacenter investment (1.2% of GDP) is approaching the scale of the great railway buildout (6.0% of GDP in 1880s)
- •Current AI infrastructure spending is already double the telecom boom levels (1.0% in 2000)
- •Tech companies betting massive capital on AI infrastructure before full market development
- •AI is driving first major electricity demand growth in decades - fundamental infrastructure impact
- •Data center construction now exceeds office construction - society prioritizing computation over traditional work spaces
- •Classic "build it and they will come" pattern of Installation Phase repeating with AI
Key Takeaway:
We are in the infrastructure building phase - the foundation being laid today will enable the AI economy of tomorrow.
Where Are We Now? Reading the AI Revolution
By applying Perez's framework to current data, we can assess where AI sits in the typical technological revolution cycle. The evidence suggests we are deep in the Installation Phase, with early signals of an approaching turning point.
Current Position Assessment
Multiple indicators can help us pinpoint our current position in the AI revolution. From investment patterns to infrastructure development, each signal tells us something about where we are in the cycle.
AI Revolution: Current Position Assessment
Based on multiple indicators, we can estimate where AI sits in the typical technological revolution cycle. Click on each indicator to explore the evidence.
Overall Assessment
What This Means for Our AI Future
Understanding these patterns isn't just academic. It has profound implications for how we should think about AI development, investment, regulation, and social adaptation. The framework suggests both tremendous opportunities and significant risks ahead.
What the Perez Framework Tells Us About Our AI Moment
By applying Carlota Perez's framework to current data, we can draw four key conclusions about where we are in the AI revolution and what comes next.
We Are Deep in the Installation Phase
Multiple indicators confirm we are in the infrastructure-building, high-investment, high-volatility period that precedes mass adoption.
Supporting Evidence
- Massive capital investment in AI infrastructure ($365B+ annually)
- Exponential scaling of compute and data centers
- High speculation and valuations in AI companies
- Rapid experimentation and "irrational exuberance" in AI applications
What This Means
- Expect continued volatility and boom-bust cycles
- Infrastructure buildout will continue for several more years
- Many current AI companies will not survive the transition
- The real economic transformation is still ahead of us
⚠️Key Risk
AI bubble could burst before reaching maturity, leading to prolonged "AI winter"
🚀Key Opportunity
Unprecedented infrastructure is being built that will enable future breakthroughs
We Are Deep in the Installation Phase
Multiple indicators confirm we are in the infrastructure-building, high-investment, high-volatility period that precedes mass adoption.
Supporting Evidence
- Massive capital investment in AI infrastructure ($365B+ annually)
- Exponential scaling of compute and data centers
- High speculation and valuations in AI companies
- Rapid experimentation and "irrational exuberance" in AI applications
What This Means
- Expect continued volatility and boom-bust cycles
- Infrastructure buildout will continue for several more years
- Many current AI companies will not survive the transition
- The real economic transformation is still ahead of us
⚠️Key Risk
AI bubble could burst before reaching maturity, leading to prolonged "AI winter"
🚀Key Opportunity
Unprecedented infrastructure is being built that will enable future breakthroughs
The Bottom Line
We are living through one of the most significant technological revolutions in human history. The patterns identified by Carlota Perez over 250 years of technological change are playing out at unprecedented speed in the AI era.
The data suggests we are deep in the Installation Phase, with early signals of an approaching turning point. The next 2-5 years will be critical in determining whether AI fulfills its transformational promise or faces a temporary setback.
Understanding these patterns doesn't just help us predict the future. It helps us shape it.
The Road Ahead
We stand at a unique moment in history. The AI revolution is unfolding faster than any previous technological transformation, but it's following the same fundamental patterns that Perez identified across centuries of change.
The next 2-5 years will be critical. If the historical pattern holds, we may see a turning point that reshapes how AI is developed, regulated, and deployed. Those who understand these patterns will be better positioned to navigate the transformation ahead.
The question isn't whether AI will transform our world, the patterns we highlighted show it already is. The question is whether we can learn from history to shape that transformation in ways that benefit everyone.
Finally, realize you aren't being left behind and it is very early in this technology revolution. Stay curious!