Global markets were already fragile. Big AI bets could break them
SPY•Markets face mounting pressure from wars, inflation, high borrowing costs and record debt as doubts grow about returns on vast AI investments. Hyperscalers are estimated to invest $1.2 trillion in AI next year, on top of $900 billion this year.
1. AI trade faces scrutiny
Investors began pulling out of AI stocks in October, with more than $2 trillion in market value wiped from the Nasdaq 100 last month. Big Tech earnings intensified scrutiny of whether AI investments can generate returns quickly enough; some proposed data center projects struggled to raise money, and technology shares fell across the US, South Korea and China.
2. Debt and rates add pressure
The article describes rising borrowing costs alongside wars, trade tensions and high sovereign debt. The 10-year US Treasury yield fell almost 20 basis points on October 22, its biggest daily decline since early 2023, but remained around 5%. Global debt stands above $350 trillion, nearly three times the size of the global economy, according to the Institute of International Finance.
3. Spending props up markets
Danske Bank estimates that about half a dozen US hyperscalers will invest $1.2 trillion in AI next year, following an estimated $900 billion this year. Tech and AI stocks make up more than 40% of the S&P 500; the index was down 3% from its early October peak, while the Russell 2000 was nearly 8% below its August peak. The article also notes that 84% of S&P 500 companies reporting third-quarter results had beaten consensus estimates.
