The AI-related contribution to the 4 per cent fall in the S&P 500 so far this month relates to the increasing concern that the AI stocks, and technology stocks more broadly, that had driven the market to record levels are now in bubble territory.<\/p>\n
The \u201cMagnificent Seven\u201d mega technology stocks \u2013 Alphabet, Amazon, Apple, Meta, Microsoft, Tesla and Nvidia \u2013 were up about 27 per cent for the year, before the sell-off wiped nearly 7 per cent of their value.<\/p>\n
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There are very real concerns about how much the AI companies are spending on chips, training their large-language models and data centres relative to the prospective near-term returns.<\/p>\n
The five biggest AI companies \u2013 the so-called \u201chyperscalers\u201d \u2013 will spend about $US375 billion on AI this year and around $US450 billion next year, if not a lot more, for uncertain returns.<\/p>\n
Even those companies \u2013 Google, Microsoft, Meta and Amazon \u2013 with their massive cash flows, are feeling the pinch of funding their AI ambitions, increasingly resorting to debt and therefore amplifying the risks of misjudgments between the levels and rate of investment and the timing and scale of the eventual returns.<\/p>\n
They and others, like OpenAI, are also increasingly striking circular finance deals that are creating a web of interdependencies across the sector that have a Ponzi-like feel to them and which are creating a sectoral vulnerability.<\/p>\n
As recently as Monday, another of those deals was announced, with Microsoft and Nvidia committing to invest up to $US15 billion in AI start-up Anthropic, which will buy $US30 billion of computing capacity from Microsoft and up to a gigawatt of computing capacity based on Nvidia\u2019s chip designs.<\/p>\n
Nvidia, which is at the centre of many of the circular deals, reports its third-quarter results on Wednesday in the US. It will probably, as it has consistently done, outperform analysts\u2019 forecasts. Heaven help the tech sector, and the AI companies in particular, if it doesn\u2019t.<\/p>\n
The cryptocurrency market is a barometer of perceived risk, arguably providing the clearest signals of investors\u2019 risk appetites.<\/p>\n
![\"Bitcoin](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/11\/f5b78a88161ece767a001140202a05d20e87bf0c.jpeg\")
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Bitcoin has always been extremely volatile, but the involvement of institutional investors in the market is likely to have exacerbated that volatility and created a conduit between the crypto market and mainstream markets.Credit: Bloomberg<\/p>\n
It has lost nearly $US1 trillion of value in six weeks, with the flagship for crypto assets, bitcoin, tumbling about 20 per cent from its peak of about $US126,000 this year to just under $US90,000 on Monday. It has since traded just above $US90,000, having lost around $US500 billion of market value from its peak.<\/p>\n
Crypto assets are inherently speculative and volatile. They are the riskiest of assets, acutely sensitive to the external environment.<\/p>\n
Their markets have, however, been increasingly institutionalised since Trump gave them legitimacy by pledging to make the US the world\u2019s \u201cbitcoin superpower\u201d and his family plunged into the market. (They too have lost heavily \u2013 nearly $S3 billion of paper wealth in their World Liberty Financial entity has evaporated \u2013 as a result of the plunge in crypto prices.)<\/p>\n
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With institutional investors come institutional investment strategies and practices, so a lot of money has poured into crypto assets this year that is borrowed, or which needs liquidity, or which is pursuing derivative-related strategies. There\u2019s also been a deluge of retail money via exchange-traded funds, which have yanked close to $US500 billion from the crypto market during the downturn.<\/p>\n
Bitcoin has always been extremely volatile, but the involvement of institutional investors in the market is likely to have exacerbated that volatility and created a conduit between the crypto market and mainstream markets.<\/p>\n
It is conceivable, indeed near certain, that some crypto investors have been hit with margin calls because of the severity of the downturn in prices and have had to drum up liquidity by selling more conventional assets, magnifying the volume of selling in equities, for instance.<\/p>\n
With institutions, according to the latest Bank of America survey of major fund managers, barely holding any cash, and heavily overweight stocks, particularly AI-related stocks, any crack in either crypto or equity markets would have ignited a rush to exit the markets.<\/p>\n
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It\u2019s not necessarily a bad thing that markets that have run too hard and too fast take a pause that blows some of the froth off the AI bubble, if that is what it is, or adjusts to a different outlook for interest rates and an economy which is looking vulnerable to a bout of stagflation (increasing inflation coinciding with decreased growth and rising unemployment).<\/p>\n
Indeed, a more cautious and sceptical approach to evaluating the investment merits of the torrents of equity and debt pouring into AI \u2013 as opposed to whatever transformative affects AI may eventually have \u2013 might stave off something far worse for the real economy than a material correction in the sharemarket, or the reversal of this year\u2019s gains in crypto prices.<\/p>\n","protected":false},"excerpt":{"rendered":"Even if it weren\u2019t forced to disgorge that revenue, the (albeit relatively modest) impact of tariff revenues on…\n","protected":false},"author":2,"featured_media":295045,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-295044","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/295044","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=295044"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/295044\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/295045"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=295044"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=295044"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=295044"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}