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Investors\u2019 love affair with all things artificial intelligence seems to be wavering. Shares in the hyperscalers and chipmakers are tumbling<\/a> around the world, while costs of their rapidly-increasing debt are rising.<\/p>\n It\u2019s not one thing that is prompting investors and lenders to moderate their enthusiasm for AI, but a range of questions that have been hardened by recent developments.<\/p>\n In just over a month, the Philadelphia Semiconductor Index, regarded as the global barometer for the tech hardware sector, has lost more than 25 per cent of its value. The Nasdaq Index is down more than 8 per cent and the \u201cMag7\u201d index of the biggest technology stocks more than 10 per cent.<\/p>\n South Korea\u2019s main market index, the semiconductor giants-driven Kospi, fell more than 10 per cent on Tuesday and has now lost more than a third of its value in the past five weeks.<\/p>\n In Europe, ASML, the world\u2019s key maker of chip-manufacturing equipment<\/a> \u2013 and the only company producing the machines that make the most advanced chips \u2013 has lost nearly 20 per cent of its market value this month.<\/p>\n When even the momentum within the \u2018picks and shovels\u2019 tech stocks is reversing \u2013 despite quite robust earnings \u2013 it is apparent investors are becoming nervous about the sustainability of the 3\u00bd-year bull market in AI-related stocks.<\/p>\n The AI bull market was vulnerable to even the slightest setback, given how far and how hard it had run.<\/p>\n There are some old fears resurfacing.<\/p>\n There have been lingering concerns about the circularity of the financing deals<\/a> AI companies have done to fund the training of their models and the chip purchases and data centre commitments that underpin their pursuit of agentic AI.<\/a> Beyond the nature of those deals, there is also increasing concern over scale.<\/p>\n Then there\u2019s another concern that, in pursuing ever more advanced models and the holy grail of artificial general intelligence, or human-level cognitive capabilities, the companies are gold-plating AI and leaving the mass commercialisation of it to far cheaper open-source models from China.<\/p>\n Related Article It\u2019s not helping that some of the leading AI models have gone rogue<\/a>. The OpenAI agent that escaped its \u201csandbox\u201d last week, gained access to the internet and then hacked another AI firm is now thought to have done the same thing to another tech company. Anthropic\u2019s Claude Mythos also managed to breach its sandbox earlier this year.<\/p>\n The AI bull market was vulnerable to even the slightest setback, given how far and how hard it had run.<\/p>\n The release by China\u2019s Moonshot of an impressive new \u201copen weight\u201d model<\/a> (it\u2019s not open source, but anyone can run and customise it) earlier this month, with capabilities close to Anthropic\u2019s industry-leading products, would by itself have caused a shock for investors already wary of China\u2019s ultra-cheap open-source AI products.<\/p>\n Reports that China has begun producing the lithography tools<\/a> required for the most advanced chips \u2013 similar to those that previously only ASML was able to manufacture \u2013 have been another destabilising development.<\/p>\n Separately came news that OpenAI is close to leasing a $US500 billion ($716 billion) data centre<\/a> in Ohio, with Nvidia providing a financial backstop by financing OpenAI\u2019s purchases of $US350 billion of Nvidia chips for the centre.<\/p>\n Anthropic, Google, Amazon, Microsoft, Oracle and others have been involved in similar deals, although Nvidia has probably been most active in doing deals that help lower the cost of funding for customers in return for their commitment to purchase its chips.<\/p>\n That\u2019s where the concern about \u201ccircular\u201d finance stems from. It means that the AI ecosystem is being built on mutual dependencies \u2013 and mutual vulnerabilities. There are now many potential dominoes in those incestuous relationships.<\/p>\n Beyond those particular concerns, there is a larger one: the rate at which the companies are spending on AI.<\/p>\n Related Article That fear was given a sharper edge last week<\/a> when Google\u2019s parent company Alphabet produced its second-quarter results, which showed \u2013 for the first time since it listed on the sharemarket \u2013 that it had negative cash flows after capital expenditures of $US45 billion in the quarter. It then raised its forecast of full-year capex from a range of $US180 billion to $US190 billion to between $US195 billion and $US205 billion.<\/p>\n The same day, Tesla also revealed it had experienced negative cash flows in the June quarter, having spent $US5.8 billion, much of it AI and robotics-related. It said it was now targeting capex of $US25 billion for the full year.<\/p>\n Investors were taken aback by that acceleration in spending on AI.<\/p>\n The hyperscalers \u2013 the biggest of the AI companies \u2013 are expected to invest as much as $US750 billion this year. Goldman Sachs has estimated that Alphabet, Amazon, Microsoft and Facebook and Instagram owner Meta will, between them, invest about $US5.3 trillion by 2030.<\/p>\n Until quite recently, most of the hyperscalers\u2019 spending has been funded from their pre-existing cash flows. It has been the AI start-ups like OpenAI and Anthropic that have relied largely on raising equity from private markets to pay for their ambitions.<\/p>\n Now, companies like Elon Musk\u2019s SpaceX are listing on public markets to gain access to the larger pools of capital. Anthropic and OpenAI planned their own trillion-dollar floats this year, but the environment \u2013 which includes a plunge in SpaceX\u2019s share price<\/a> from above $US200 to $US116, below its $US135 issue price \u2013 may be giving them second thoughts.<\/p>\n Even Alphabet has raised equity this year, along with increasing volumes of debt. Indeed, the whole AI sector has been increasingly tapping debt markets as equity markets have become satiated with AI exposures \u2013 or perhaps their capacity to supply the sector is nearing exhaustion.<\/p>\n The hyperscalers, and even SpaceX, have been treated in the past as if they carried investment-grade credit ratings (SpaceX does, but most are unrated), but their debt doesn\u2019t trade like investment-grade debt, and recent debt issues have seen pretty weak demand from investors.<\/p>\n SpaceX\u2019s bonds have been trading at more than 2 percentage points over risk-free bond rates, essentially being treated as junk bonds.<\/p>\n Related Article Issues from Alphabet, Amazon, Microsoft and Meta haven\u2019t been trashed, but spreads have widened, interest from debt investors has weakened, and they are being treated as significantly lesser-quality credits than they were before the companies went on their AI spending binge.<\/p>\n The cost to insure their debts against default reflects the shift in perceptions. The cost to insure hyperscalers\u2019 debts has risen more than 50 basis points over the past year.<\/p>\n Credit default swaps for Oracle, the most leveraged of the hyperscalers, cost about 2.15 percentage points per $US100,000 per year to insure \u2013 $US215,000 a year to protect each $US10 million of exposure.<\/p>\n Debt investors are more risk-aware and risk-averse than their equity market counterparts, but their increasingly cautious approach to what has developed into a deluge of AI-related debt underscores the fragility of the sector\u2019s financing and the pressures that will continue to mount.<\/p>\n The four biggest hyperscalers have already raised more than $US400 billion from debt markets this year and total AI-related debt in the market must be at least $US500 billion. Japan\u2019s Nikkei has estimated that there is another $US1.6 trillion of off-balance sheet debt\/liabilities<\/a> from leases and contracted purchases of chips and other hardware hidden within the sector.<\/p>\n With capex growth outstripping the growth in cash flows, the demand for new equity and debt will continue to rise.<\/p>\n The growing question mark, one underscored by the markets\u2019 performance in recent weeks, is whether there will be sufficient supply at something less than a prohibitive cost.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n Save<\/p>\n You have reached your maximum number of saved items.<\/p>\n![\"Competition](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/07\/f6f6a92964a1bdc69c369f06c4fd4d2e743fc61c.jpeg\")
Competition from China in developing AI at lower costs is adding to headaches for investors.Bloomberg<\/p>\n![\"Data](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/f8f21c208c4a42a4eb41ffbbfa33cc08fbfa192b.jpeg\")
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Nvidia has probably been most active in doing deals that help fund customers\u2019 AI investments in return for their commitment to purchase its chips.Bloomberg<\/p>\n![\"The](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/07\/a444e52f29beaa934a080033b8f379a797547360.jpeg\")
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