The chance of a market correction in the artificial intelligence sector is “pretty high,” former Meta executive and British politician Nick Clegg warned on Wednesday, as he pushed back on the concept of artificial superintelligence.  

Clegg, the former deputy prime minister of the U.K. who went on to guide policy decisions at U.S. tech giant Meta, said the AI boom has resulted in “unbelievable, crazy valuations.”  

“There’s just absolute spasm of almost daily, hourly, deal making,” he told CNBC’s Arjun Kharpal for “Squawk Box Europe.”  

“You’ve got to think, wow, this could be headed for a correction,” he said, adding that the likelihood of such an event is “pretty high.”  

Bubbles are typically defined by inflated valuations across the private or public market, where the price of a company doesn’t match its fundamentals.  

A correction comes down to whether large hyperscalers — “who are pouring hundreds of billions of dollars into the ground and building these data centers” — can recoup their infrastructure investments and prove their business models are sustainable, Clegg said.  

“That’s obviously going to raise some issues,” he added, as is “the fundamental paradigm on which this whole industry is built, the so-called large language model AI paradigm.”  

Many high-profile tech chiefs and investors have backed the idea of artificial superintelligence, including SoftBank founder Masayoshi Son and Meta CEO Mark Zuckerberg, the latter of which created an AI lab to pursue the technology earlier this year.  

“I think there are certain limits to that probabilistic AI technology, which means that it won’t perhaps be quite as all singing and all dancing as people suggest,” Clegg added. “But it doesn’t mean that technology itself is not going to persist, it’s not going to flourish and is not going to have a huge effect.” 

Indeed, Clegg’s former employer Meta emerged from the dot-com era bubble and is today one of the world’s largest companies. Amazon and Google charted a similar course, showing that a bubble bursting does not always mean the end of a company.  

It’s a common adage in venture capital that the best companies are built in a downturn or tough funding environment, often due to investors watching their bottom line more closely and putting greater emphasis on sound business metrics when making investment decisions. This forces business leaders to operate more efficiently, with those who can do more with less funding likely outliving competitors.  

Clegg’s stance mirrors that of other investors and tech leaders, who believe a bubble is emerging, but it doesn’t mean that AI isn’t here to stay.  

The pile-in has created an “industrial bubble” but “AI is real, and it is going to change every industry,” Jeff Bezos told a crowd at Italian Tech Week earlier this month.  

There is low-hanging fruit where AI can be applied quickly, but society at large will adopt the technology more slowly, according to Clegg. 

“There’s a lot of hype. People in Silicon Valley assume that if you invent a technology on Tuesday, everybody’s going to use it on Thursday. It’s not actually how it works at all,” he said. 

“It took 20 years for all of us to get onto desktop computing after desktop computing was technologically feasible. So, I think it’s the pace that is the thing to look out for. That will vary sector from sector to sector, country by country, but I think it might be just a little bit slower than some of the technologists themselves are predicting at the moment,” he added.  

Taiwan Semiconductor Manufacturing Company on Thursday reported a 39.1% increase in third-quarter profit from last year, hitting a fresh record as demand for artificial intelligence chips stayed strong.

Here are the company’s results versus LSEG SmartEstimates:

• Revenue: NT$989.92 billion new Taiwan dollars, vs. NT$977.46 billion expected
• Net income: NT$452.3 billion, vs. NT$417.69 billion 

TSMC’s revenue in the September quarter rose 30.3% from a year ago to NT$989.92 billion, beating estimates.

TSMC’s high-performance computing division, which encompasses artificial intelligence and 5G applications, drove third-quarter sales.

As Asia’s largest technology company by market capitalization, TSMC has benefited from the artificial-intelligence megatrend as it manufactures advanced AI processors for clients, including Nvidia and Apple.

TSMC said advanced chips, with sizes 7-nanometer or smaller, accounted for 74% of TSMC’s total wafer revenue in the quarter. 

In semiconductor technology, smaller nanometer sizes signify more compact transistor designs, which lead to greater processing power and efficiency. 

Europe’s ambitious artificial intelligence strategy is at risk of colliding with an often overlooked but critically important environmental issue: water scarcity.

The European Union has big plans for data center expansion, announcing in April that it intends to at least triple its capacity over the next five to seven years as part of a push to become a world-class AI hub.

The rapid rollout of data centers, which power all aspects of the digital economy, from social media and online banking to AI tools like ChatGPT, has sparked some concern — particularly in regions already facing water scarcity.

The issue is especially acute across southern Europe, with around 30% of the population known to be situated in areas with permanent water stress. This refers to a situation where the demand for water exceeds the available supply during a specific period.

Data centers typically require large quantities of water to keep them from overheating.

Major tech companies like Amazon, Microsoft and Meta have invested billions of U.S. dollars in new facilities in Spain, for instance, while Google has plans to develop three hubs in Greece’s Attica region.

Kevin Grecksch, associate professor of water science, policy and management at the U.K.’s University of Oxford, told CNBC that plans to build data centers in water-stressed areas across Europe reflects a lack of integrated thinking from policymakers.

“AI is a buzzword and the talk of the town,” Grecksch said. “So, national and regional politicians try to get their hands on it, and it sounds as if you’re investing into the future, creating a few new jobs — but sustainability seems to be an afterthought.”

Grecksch said the rapid rollout of data centers across the region throws up plenty of unanswered questions, such as, given that in most jurisdictions public water supply has priority over everything else, what happens if data centers are shut down in a drought scenario? He conceded he had no answer to this prospect.

“Data centres tend to be built in arid or semi-arid climates because that’s the preferred environment for servers; yet those areas tend to be subject to water scarcity or drought prone as well,” Grecksch said.

A spokesperson for the European Commission, the EU’s executive arm, said policies of the European High Performance Computing Joint Initiative (EuroHPC JU) include selecting hosting sites for AI factories based on criteria that prioritizes energy efficiency and environmental sustainability.

“Green computing will continue to be pursued through energy-efficient supercomputers optimised for AI, using techniques such as dynamic power saving and re-use techniques like advanced cooling and recycling of the heat produced,” the spokesperson told CNBC by email.

The EU referenced the new “JUPITER” supercomputer in Jülich, Germany, as “a prime example of European excellence” in addressing energy efficiency, saying the system runs entirely on renewable energy and features “cutting-edge” cooling and energy reuse.

In Aragon, an area of severe water stress in northeastern Spain, Amazon is planning to open three data centers. The proposal, which the U.S. tech giant says will create thousands of jobs, has sparked tension between local farmers and environmental activists.

In the U.K., the small English village of Culham has been picked as the first of the British government’s so-called AI “growth zones.” The designation of the Oxfordshire site, which is situated close to one of the country’s first new reservoirs in 30 years, has raised fears that it could put further pressure on local water supplies.

Nick Kraft, senior analyst at political risk consultancy Eurasia Group, said “extremely arid” and high-water stress localities were being targeted across Europe for further data center development.

“Complicating the matter is the fact that the most common understanding of data center water usage, and typically what companies report on when communicating with local stakeholders, is on-site water use — or the water used for cooling in data centers,” Kraft told CNBC by email.

“This despite more than half of data centers’ water footprint being off-site, occurring in energy generation and semiconductor manufacturing,” he added.

There are emerging signs that data center operators are maturing in their water stewardship, Kraft said, but assessing the full water footprint of these projects is expected to remain a major challenge.

Analysis published by S&P Global last month said the data center industry’s average exposure to water stress is projected to be high in the 2020s, with southern European countries such as Spain and Greece among the locations forecast to face the most water stress.

Microsoft has been trialing data center designs that it says consumes zero water for cooling and Start Campus said it’s Sines facility in Portugal achieves a WUE of zero by recycling seawater through its sytems.

The EUDC’s secretary general also sought to highlight the importance of data centers to the region’s digital economy.

“This is trillions of dollars of GDP and millions of technology jobs in Europe alone — which in average pay significantly higher salaries than national average wages. A 20 [megawatt] Datacentre uses the similar amount of water as a golf course! How much GDP do golf courses create? What kind of jobs?” Winterson said.

European lawmakers have previously warned about the region’s growing water crisis, saying there is a pressing need to tackle issues such as scarcity, food security and pollution at a time when Europe is the fastest-warming continent on the planet.

The European Environment Agency, for its part, said late last month that the region’s water resources are currently under “severe pressure,” with water stress affecting one-third of Europe’s population and territory.

When factoring in the explosion of AI demand, Laura Ramsamy, climate and hazard lead at data analytics platform Climate X, said the rollout of new hyperscale data centers in already water-stressed European areas “is really exacerbating the problem.”

In the Netherlands in 2022, for instance, Meta paused its plans to build a large data center in the region of Zeewolde amid objections over environmental concerns, particularly high power and water consumption.

Ireland, which has long embraced the rollout of data centers to facilitate an AI boom, also recently came under scrutiny from environmental groups, with many of these hubs concentrated in the Dublin area.

Notably, the Netherlands and Ireland have both imposed effective bans on new data centers over the coming years due to concerns over grid capacity and their environmental impact.

A spokesperson of Ireland’s Department of Climate, Energy and the Environment said the construction and operation of data centers have “positively contributed” to the Irish economy over the past decade.

“As with all sectors of our economy, the operation and development of data centres are underpinned by Ireland’s legally binding climate objectives and the need to maintain robust energy security,” the spokesperson said.

“It is understood that the largest data centres in Ireland primarily operate air cooling rather than water cooling systems. This differentiates Ireland from many global data centre locations,” they added.