Commentary: Is the AI stock bubble finally bursting?

The Financial Times' Katie Martin notes that the recent AI stock market shakeout may signal the bursting of the AI bubble. She highlights that this is the third significant downturn in just a few weeks, which is more concerning than previous market jitters. While AI technology does work, its impact on markets resembles that of the internet in the past, which also caused market crashes.

The article points out several potential sources of stress for AI assets, including high debt levels, questionable revenue potential, and circular financing. Nearly 29% of AI firms' investment deals involve other AI firms, and over half of incoming investments in AI companies come from other AI firms, creating a risk of circular financing turning into a self-defeating cycle.

The recent US midterm elections brought relief to markets, but later revealed that voters were against AI developments, particularly the construction of large data centers. This opposition could lead to more regulatory hurdles, delaying projects and increasing costs. Major AI-focused stocks, such as CoreWeave, Sandisk, and Micron, have experienced significant drops in value.

Strategists predict a worst-case scenario where the AI trade could lose 30% of its value, resulting in up to $200 billion in credit losses and a wave of tech-related debt defaults. The article suggests that government bonds and non-US stocks might offer refuge for investors during this turbulent period.