Financial Times<\/a> reported.<\/p>\nThe Oracle report followed a separate account on Tuesday that chip-giant Nvidia had instructed cloud customers to sell at least 51 per cent of their services to non-Chinese companies.<\/p>\n
Nvidia neither confirmed nor denied the account to AFP, but its response left little doubt about the national contest surrounding its products.<\/p>\n
\u201cAmerica cannot win the AI race unless America\u2019s AI infrastructure wins worldwide,\u201d the company said. <\/p>\n
Beijing\u2019s push is mostly about reducing dependence on foreign technology. Washington\u2019s restrictions, meanwhile, limit Chinese access to some of the most powerful American-designed chips.<\/p>\n
It\u2019s just one of the measures the US has taken against the rapidly-advancing Chinese tech sector.<\/p>\n
Washington has also ordered federal civilian agencies to remove Chinese firm DeepSeek\u2019s AI tools, including third-party products built on its technology, warning that sensitive government data could be transferred to the CCP. <\/p>\n
Is AI a bubble?<\/p>\n
There is a separate and increasingly uncomfortable argument about how much of the AI boom will ultimately pay for itself.<\/p>\n
The concern is that investors may be paying extraordinary prices for businesses whose future profits are much less certain than their all-encompassing sales pitches.<\/p>\n
Some returns are already arriving, but there are serious worries the world is sitting inside a bubble.<\/p>\n
Oracle reported quarterly net income available to common shareholders of US$4.7 billion (A$6.7 billion) in September. Revenue from its cloud-infrastructure business more than doubled compared with a year earlier.<\/p>\n
It\u2019s clearly not a company surviving entirely on inspirational presentations. But its free cash flow was negative US$5 billion (A$7.1 billion) for the quarter as it poured money into expansion. <\/p>\n
In plain English, the cash generated by running the business did not cover its spending on facilities and equipment.<\/p>\n
Oracle also reported US$664 billion (A$947 billion) in contracted future revenue awaiting delivery. The company still has to provide the services and collect the payments. <\/p>\n
Those company-wide results demonstrate serious business growth. But they do not explicitly establish that every dollar being committed to AI will earn an adequate return.<\/p>\n
Going in circles?<\/p>\n
The International Monetary Fund has identified another major complication inside the AI freight train. <\/p>\n
Some of the industry\u2019s money is travelling in circles.<\/p>\n
A large technology company invests in an AI developer. The developer spends money renting computing capacity from that company. The resulting contracts help justify further investment in infrastructure.<\/p>\n
These can be legitimate commercial arrangements, but they also mean a supplier\u2019s apparent customer demand can depend partly on funding it helped provide. <\/p>\n
If the developer struggles, the investor and the supplier may discover they have been relying on the same business twice.<\/p>\n
The Fund\u2019s October financial stability report warned of a potential market \u201ccorrection\u201d<\/p>\n
\u201cWeaker or less durable AI investments and profitability could be a shock that triggers a market correction,\u201d it read.<\/p>\n
IMF chief Kristalina Georgieva has separately warned that, in a severe scenario, \u201cthe losses could spread around the world\u201d. <\/p>\n
She also recognised AI\u2019s potential to lift productivity and economic growth, but cautioned that too much hype could spill over if the major players aren\u2019t careful.<\/p>\n
China\u2019s expensive reality check<\/p>\n
In China, investors have already had a painful demonstration of the risks.<\/p>\n
In an October 26 analysis, Reuters reported that the mainland STAR50 index, which includes prominent chip and AI-linked companies, had fallen 40 per cent in less than four months.<\/p>\n
A whopping US$480 billion (A$684 billion) had been wiped from market value. <\/p>\n
\u201cThe stock market later evolved into a speculative crazy bull,\u201d Beijing-based fund manager Dong Baozhen told Reuters.<\/p>\n
\u201cAnd now we see the bubble bursting.\u201d<\/p>\n
At the time of the report, the index still traded at roughly 100 times its companies\u2019 past annual earnings, down from nearly 250 times.<\/p>\n
The US-based Oracle reports again in December, giving investors another chance to check how much of its enormous order book is actually turning into cash.<\/p>\n
China has supplied an expensive warning ahead of that reckoning, showing AI does not necessarily have to disappoint as a technology for it to disappoint spectacularly as an investment.<\/p>\n
Read related topics:China<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"A US$7 billion (A$10 billion) artificial intelligence deal has reportedly come undone under the weight of serious 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