Growing Evidence of an AI Bubble
The AI boom includes two unsustainable dynamics: debt issuance and circular cash flows.
Key Takeaways
AI Bubble Dynamics Mirror The 2000 Tech Bubble: We keep hearing about how this tech mania is different from the late 1990s because all the AI-related spending is being funded by internally-generated cash flows. However, total tech sector debt issuance this year has ballooned by over +$200 billion to fund all the capacity expansion, and that is an unprecedented boom in leverage. Now, in this latest chapter of the AI story, we have the “circularity” issue, which looks a lot like the vendor-financing wave in the late 1990s. Meanwhile, investors are behaving as if the Tech boom is going to deliver average annual earnings growth of +15% as far as the eye can see (at least through 2030) and a Total Addressable Market for AI that will swell by 8x to as much as $4 trillion. Much like what was being discounted for the World Wide Web heading into the 2000 Tech bubble peak.
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