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Industry Opinion
Is the AI Boom Going to Invite an Investment Bubble?
By Nironjan Roy, CPA, CMA — Certified Anti-money laundering Specialist and Banker
In the middle of last month's trading, Oracle shares had dropped sharply, with a single-day slide of about 10%, the largest in 2025. On that trading day, Oracle's shares were the worst performer in the S&P 500 and dragged the Nasdaq Composite into the red, although the Dow Jones Industrial Average maintained an over 1% gain. Of course, there are several reasons and rationales behind such a significant fall in Oracle's share price, which is an entirely different aspect of discussion. However, such a significant fall in Oracle's share is viewed as fear-inducing, concerning, and particularly alarming for AI (Artificial Intelligence) industry players.
Needless to say, AI is the most discussed topic across media, academia, the tech industry, financial markets, and even among regulators. Both the use and abuse of AI have already started. Commercial places, offices, establishments, and even banks have already begun applying AI tools, and for this purpose, they are making significant investments in this sector.
Tech companies, particularly those with massive wealth, are pursuing massive investments and thus getting involved in competition among industry players for leadership in the AI world. These tech companies have been investing heavily, a large portion of which is generated from advertising and cloud computing. It has been learned that there was no significant debt-driven investment in building networking and computing infrastructure, so there was no scope for an investment bubble. However, the scenario has changed while investing in AI infrastructure, as increasingly borrowed money is being invested in this sector. It is true that big tech giants, which are financially strong, are making most of their investments from their own sources, but many companies are becoming highly leveraged, which may result in a bubble at some point.
Debt financing at the forefront of AI
Some small tech companies have also been heavily relying on debt financing to remain at the forefront of AI. It is reported that OpenAI has secured a mega contract to take a market position at a new level. This tech company has reportedly finalized preparations for a network data center, which will require a one-trillion-dollar investment over the next few years. To support this data center project, OpenAI has reached a $300 billion deal with another tech company, Oracle, under which Oracle will develop AI computing infrastructure and lease it to OpenAI. As reported, Oracle will be required to invest in setting up this facility before receiving payment from OpenAI, which will compel Oracle to mobilize funds either from its own sources or from a lender, and most likely the latter is its option.
Because of the deal with OpenAI, Oracle will use massive debt to fund its AI infrastructure development project, leaving the company highly leveraged. One analyst has opined that Oracle would have to borrow $25 billion a year over the next few years. As reported in the media, Oracle is already highly leveraged, with $82 billion in long-term debt and a debt-to-equity ratio of about 450%. So, their debt burden will persistently rise as they take on new financing for this AI infrastructure project. Like Oracle, another tech company, CoreWeave has reached a $19 billion deal with Microsoft to supply AI Computing Services, for which the financing will comprise both cash flows and debt secured against its contract. So, this tech company will also have a highly leveraged financing structure. Oracle and CoreWeave are not isolated companies; many tech companies are pursuing massive investments in AI infrastructure while borrowing heavily.
However, the return is not expected to be commensurate with the way the discussion is going, the investment is being made, and the application is taking place. Recent media reports suggest that AI is not gaining traction as quickly as its supporters predict. Only 3% of consumers are paying for AI. The experts opine that projections of spending on AI data centers reaching trillions of dollars a year within the next few years seem highly optimistic. Some analysts and experts have also opined that many large AI contracts may be postponed or renegotiated if demand from AI service users does not grow to that extent.
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There is an enormous investment in AI infrastructure on one side, while on the other, investment in the secondary market is overheating. Individual investors are focusing on buying AI stocks in bulk. Even many money managers, portfolio managers, and institutional investors are shifting their stakes in AI stocks, which is fueling share prices in this sector. In response, the stock market is now dominated by AI stocks. During the last decade, the US stock market was dominated mainly by FAANG (Facebook, Apple, Amazon, Netflix, and Google), which AI stocks have now replaced. Tech companies’ massive investment in the AI sector with borrowed money and the dominance of the stock market by AI stocks are indications of a bubble, and many experts have already started pointing it out.
Amazon founder Jeff Bezos has warned about an AI investment bubble while expressing optimism about the long-term benefits of this investment. A few months back, while speaking at the Italian Tech Week held in Turin, he said, “Investor euphoria means experiment gets funded, every company gets funded – the good ideas and the bad ideas.” In this connection, he also noted that investors have difficulty distinguishing between the two. While expressing caution about the AI bubble, he has compared AI investment to the biotech bubble in 1990 and the dotcom bubble at the end of the last century. The tech bubble had ruined capital and badly impacted innumerable investors, but paved the way for the technological revolution, the result of which is the present digital world. Therefore, alongside warning about the AI bubble, he has also expressed optimism about the benefits from AI. In his opinion, AI will help transform every industry, boosting global productivity. Any alarming comment about AI should be accompanied by optimism, because taking a stance against technology is very difficult, if not almost impossible, nowadays.
Regarding the AI boom and bubble, several important factors are at play. Firstly, technological advances have always been accompanied by financial bubbles, such as the biotech and dotcom bubbles. Compared to the biotech and dotcom bubbles, AI is different in that the discussion of a bubble has come up before the boom. So, whether the AI boom will create a dotcom-type bubble remains to be seen, but the reality is that the discussion about boom and bubble goes hand in hand.