Tech stocks have been hit hard again, the third shakeout in just a few weeks, and investors are asking the same worrying question: is the AI bubble finally bursting? The Financial Times' Katie Martin says this episode feels more serious than previous bouts of nerves, though she admits she does not know the answer and suggests the picture will be clearer in a week or so.
The underlying concerns are well known. AI technology clearly works, but the internet also worked and still crashed markets a quarter of a century ago. Warning signs include increasingly creative debt structures, doubts about true revenue potential, and circular financing. The Bank for International Settlements recently noted that nearly 29 per cent of AI firms' investment deals are in other AI firms, and more than half of incoming investment in AI firms comes from other AI firms.
US politics may have provided the trigger. The midterm elections delivered thumping Democratic victories, and stocks initially rose on hopes for stronger checks on the president and an end to the war in Iran, which pushed oil back under $100 a barrel. That optimism faded quickly, because voters also made clear they oppose energy- and water-hungry data centres in their neighbourhoods. AI itself was on the ballot in several states, with measures to delay or restrict data centre development.
A tougher regulatory and permitting framework now looms for a sector that carries outsized weight in the US economy and global markets. Citadel Securities strategist Frank Flight said some projects may simply move to friendlier states, but securing new sites, power and approvals takes time. That could delay deployment and raise costs for projects financed with large amounts of borrowed money.
Source: Financial Times Companies · Summarized by HeadlinesBriefing