AI Bubble: Investors Must Prepare for a Crisis Worse Than Sub-Prime

The artificial intelligence revolution may transform the global economy, but investors must not confuse technological progress with guaranteed financial returns.

The warning signs are becoming increasingly difficult to ignore. More than US$2 trillion in market value is set to disappear from the technology-heavy Nasdaq 100 in October, which has already declined over 5.8%. Investors are beginning to question whether the enormous sums being poured into artificial intelligence (AI) infrastructure can generate adequate returns within a reasonable period.

The problem extends beyond declining share prices. Big Tech companies are escalating capital expenditure, building data centres, acquiring expensive computing equipment and expanding infrastructure at an extraordinary pace. Morgan Stanley expects AI infrastructure spending to exceed US$1 trillion next year, while J.P. Morgan projects global AI capital expenditure of US$5.5 trillion by 2030.

What makes this development particularly worrying is the growing dependence on external financing. Companies that once financed expansion through substantial operating cash flows are increasingly approaching bond and equity markets. Meta's proposed US$97.5 billion fundraising and Microsoft's reported US$25 billion bond issuance illustrate the scale of financing requirements.

Investors must ask a fundamental question: what happens if anticipated AI revenues fail to justify these investments?

Data centres, specialized chips and associated infrastructure involve enormous upfront costs. Technology also evolves rapidly, creating the possibility that today's expensive assets could lose economic value before delivering expected returns.

The sub-prime mortgage crisis demonstrated how excessive optimism, leverage and interconnected financial exposures can turn a seemingly contained problem into a global financial catastrophe.

The AI investment cycle carries a different risk profile, but its potential transmission channels are equally concerning.

A sharp correction in technology valuations could spread into corporate bonds, private credit, banks and institutional investment portfolios.

There is no denying AI's transformative potential. However, technological breakthroughs do not guarantee that every company investing in them will earn attractive returns. Nor does strong revenue growth automatically justify unlimited capital expenditure.

My warning to investors is simple: do not become prisoners of the AI narrative. Examine valuations, debt exposure, cash flows and realistic returns before committing capital. The danger is not that AI will fail, but that financial markets may have priced in an exceptionally optimistic future.

If expectations collapse, the resulting financial damage could extend far beyond Silicon Valley. Investors who ignore these warning signs today may discover tomorrow that the AI bubble was considerably more dangerous than they imagined.

From Seven Sisters to Magnificent Seven: Is America’s Supremacy Changing?

The emergence of United States as the world’s economic superpower was closely intertwined with oil. For much of the 20th century, the global petroleum industry was dominated by the “Seven Sisters”—five American companies and two European majors. Their influence extended far beyond their home countries. They controlled substantial portions of exploration, production, transportation, refining and marketing, particularly in the Middle East.

Oil was therefore much more than a commodity. Control over its production and supply gave the West enormous economic and geopolitical leverage—and helped underpin American supremacy, but the source of power is changing.

In 2026, the United States still possesses unparalleled military capabilities. Yet its confrontation with Iran has highlighted a new reality - military superiority does not automatically translate into absolute strategic dominance. Iran’s ability to employ relatively inexpensive missiles and drones demonstrates how cost asymmetry can challenge even the most sophisticated and expensive military systems.

Meanwhile, another group of seven American companies has emerged as symbols of a new economic era - Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla—the “Magnificent Seven.”

Their power is fundamentally different from that of the Seven Sisters. These entities dominate artificial intelligence, semiconductors, software, cloud computing, data, digital platforms and other technologies that increasingly determine economic competitiveness, yet there is an important contradiction.

While Wall Street provides these corporations with enormous access to capital and valuation, their physical production and supply chains are global. Critical components, manufacturing capacity and rare-earth processing remain heavily dependent on other countries. A country can therefore lead the technological revolution while remaining dependent on foreign ecosystems for some of its physical foundations.

This raises a serious question, is America moving from an age of controlling the world’s most important commodity to an age of controlling its most important technologies—without necessarily controlling everything those technologies require?

The United States may remain the world’s most powerful nation. But perhaps the era of absolute American supremacy is giving way to an era of shared supremacy, in which China, Japan and other major powers increasingly possess the resources, manufacturing capabilities and technologies needed to shape the global order.

The Seven Sisters built an oil-powered America. The Magnificent Seven may be building a technology-powered America, but unlike oil, technology cannot be controlled in isolation.