{"id":677864,"date":"2026-11-07T17:14:17","date_gmt":"2026-11-07T17:14:17","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/677864\/"},"modified":"2026-11-07T17:14:17","modified_gmt":"2026-11-07T17:14:17","slug":"are-we-ready-for-the-ai-bubble-bursting-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/677864\/","title":{"rendered":"Are we ready for the AI bubble bursting? \u2013 The Irish Times"},"content":{"rendered":"

Artificial intelligence (AI)<\/a> has many \u2013 mostly far from fully understood \u2013 implications for humanity. Among these is something concrete and current: it has launched a huge surge in spending on physical capital, to meet the demand for huge data centres. <\/p>\n

Indeed, according to a fascinating paper, Financing the AI Buildout by Stijn van Nieuwerburgh of the Columbia Business School, spending in the US will average 3.6 per cent of gross domestic product (GDP) from 2025 to 2032 (inclusive). <\/p>\n

This would be larger than the average of 2.2 per cent of GDP spent on railways between 1870 and 1890, let alone the 1.1 per cent spent on highways from 1956 to 1973. In fact, it would be the biggest sector-specific investment boom of all.<\/p>\n

Some of those earlier transformations were sustained over far longer periods. But this fact makes the AI buildout even more concentrated and so, quite possibly, even more disruptive.<\/p>\n

Moreover, as van Nieuwerburgh explains, financing the boom is now creating some classic risks, despite the strength of the huge companies (mainly Alphabet<\/a>, Amazon<\/a>, Meta<\/a>, Microsoft<\/a> and Oracle<\/a>) driving the huge surge in spending.<\/p>\n

Moreover, these risks are also macroeconomic. Booms can easily turn into busts, as stock market valuations collapse, companies go bankrupt, lenders lose money and planned investment vanishes. Will this time be different? Ultimately, that depends on the profitability of the new businesses and, in this case, hopes are very high indeed.<\/p>\n

[\u00a0A small Irish business was hit by a cyberattack linked to infected online ad. Then came the ransom demandOpens in new window<\/a>\u00a0]<\/p>\n

As the paper points out, aggregate capital expenditures by the companies listed above rose from $97 billion (\u20ac87 billion) in 2020 to $416 billion in 2025 and a forecast of $801 billion in 2026. In 2020 the surplus of operating cash flow of these companies over capital spending was $155 billion. <\/p>\n

In 2025 they still had a cash-flow surplus of more than $187 billion. But over these years, the ratio of capital spending to operating cash flows rose from 38 per cent in 2020 to nearly 69 per cent in 2025. <\/p>\n

Then, in 2026, according to the companies\u2019 forecasts, capital spending will exceed cash flow by $93 billion and the ratio of spending to cash flow will hit 113 per cent. <\/p>\n

Alphabet and Microsoft will still spend a little less than their cash flow. But Oracle\u2019s spending will be 138 per cent above it, Amazon\u2019s 36 per cent above it and Meta\u2019s close to it.<\/p>\n

\"\"British Ambassador to Ireland Kara Owen on current Anglo-Irish relations, trade opportunities, and the possibility of a Brexit reversal<\/p>\n

As a result, ever more complex financial arrangements are being made. Thus, not for the first time, an investment boom is causing an explosion in leverage. While the hyperscalers\u2019 direct investment is still important, \u201cthe marginal financing model is shifting. Specialised data centre developers, REITs, infrastructure funds and private equity investors increasingly build or acquire facilities and lease capacity to hyperscalers and other large users.\u201d <\/p>\n

The result, according to the paper, is an increasingly complex and nontransparent financial structure. In particular, it notes, \u201cpublicly rated debt represents only a relatively small share of the data center financing; much larger volumes are provided through syndicated bank loans and private-credit facilities, for which little information is publicly available.\u201d<\/p>\n

[\u00a0Former Musk aide urges Ireland to modify its approach to data centresOpens in new window<\/a>\u00a0]<\/p>\n

In sum, \u201cthe central issue is not simply that AI infrastructure is exposed to technological and operating risks, but that the sector\u2019s financing structure can transmit and amplify those risks.\u201d<\/p>\n

This is historically familiar behaviour. Risks for data-centre owners include: concentration in the tenants and also in sources of final demand; technological obsolescence and so the need to scrap and replace relatively quickly; and political and operational difficulties involved in making the investments work. <\/p>\n

Moreover, van Nieuwerburgh adds, \u201cChip designers, cloud providers, data centre operators and infrastructure investors increasingly depend on one another through long-term contracts, strategic investments and financing arrangements.\u201d This creates fragility.<\/p>\n

These are not just issues for the AI sector itself. The investment boom is big enough to have large macroeconomic implications. A paper from the Federal Reserve suggested that spending on computer hardware, software and data centres contributed more than a percentage point to annualised quarter-over-quarter US GDP growth in the first quarter of this year, partially offset by a half a percentage point of GDP increase in net imports in those categories. <\/p>\n

Both the IMF\u2019s World Economic Outlook and a recent Substack from Matt Klein shed light on the international spillovers of the global AI boom, especially on to Taiwanese and South Korean products.<\/p>\n

A crucial question, however, is how far the AI mania has infected the stock market, above all in the US. Here some of the vulnerabilities are evident. First, the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) have, until recently, been pulling the US stock market ever higher. <\/p>\n

Second, the market is at valuations rarely seen before, with a cyclically adjusted real earnings yield of 2.5 per cent, which is only fractionally above the current real interest rate. This makes sense only if earnings from stocks are about to grow far faster than ever before. <\/p>\n

In the past, however, whenever earnings have been this low relative to stock prices, the latter have crashed. Is this AI-driven boom, with all its unavoidable uncertainties about future profitability, returns on the huge and rapidly growing investment, and now the elaborate financial engineering, going to be any different?<\/p>\n

The longer the investment boom and the associated financial engineering continue, the bigger the negative economic impact is likely to be when it ends.<\/p>\n

This does not mean that AI itself will fail to be the transformative technology it seems to be, though only a species that adores playing Russian roulette would tolerate a business (Anthropic) whose prospectus says it could create \u201ccatastrophic or existential risks to humanity\u201d. <\/p>\n

New technologies have often triggered stock market manias and investment booms that end in busts. Recent market tremors suggest this could even be happening to AI now. A return to reality will come when it will come. The readiness is all. \u2013 Copyright The Financial Times Limited 2026<\/p>\n","protected":false},"excerpt":{"rendered":"Artificial intelligence (AI) has many \u2013 mostly far from fully understood \u2013 implications for humanity. Among these is…\n","protected":false},"author":2,"featured_media":677865,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[9712,3468,218,72,61,60,1226,1071,12498],"class_list":["post-677864","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-alphabet","tag-amazon","tag-artificial-intelligence","tag-business","tag-ie","tag-ireland","tag-meta","tag-microsoft","tag-oracle"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/677864","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=677864"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/677864\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/677865"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=677864"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=677864"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=677864"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}