written 1 November, 2026
published 8 November, 2026
Except for earthquakes, few physical disasters happen without any warning. The signs may be subtle, but discerning eyes can tell something is about to happen, and appropriate actions can be taken. The same is true with fiscal disasters.
The concerns about an AI bubble have been growing. Trillions of dollars have been invested, thousands of data centers have been planned, demanding a sudden 50 percent increase in electrical power. The race is on to be the first to control everything, driven by the fear that "they" will beat us.
Without deciding if AI is going to transform the economy or kill us all, there are real world issues that stand in the way of the fantasy. Data centers are becoming very unpopular with the voting public. The water to cool these systems is already scarce, on an increasingly warmer planet. There is no way to provide the amount of electrical power required, within the time frame demanded. AI development spends more money that it earns, with no indication this will change any time soon. This last one is beginning to hit home.
Eleven AI companies, with total valuation of $30 trillion, dominate the U.S. market. Their continued growth, based only on future expectations, has kept the stock market growing even as the rest of the economy is bogged down by erratic tariffs and rising fossil fuel costs from the stagnated Iran war.
However, these basic economic factors have increased interest rates, which affect the fiscal foundation of the AI firms, all heavily indebted, burning through billions of dollars each week, with little income. The result is less investor interest. The Dow peaked the first week in August and is now down 5 percent. The S&P peaked a week later, holding fairly steady so far.
AI firms rent server space from other large firms called neoclouds. One of the largest started in crypto mining in 2017 as Atlantic Crypto. After the crypto bubble crashed in 2018, the company name changed to CoreWeave and shifted business to AI support, now operating 51 data centers, built mostly with borrowed money. They have to pay 16 percent interest on their loans, twice the threshold for "junk bond" rating. In the last few weeks, their stock dropped almost 35 percent. Five other neoclouds also saw large stock value losses in early October.
With stock losses and high interest rates, all these firms are in danger of having their stock downgraded to "junk" by the rating agencies, which will lead to a sell off by pension funds and institutional investors who require more stable investments.
Server firms are not the only ones on shacky economic ground. NVIDIA, the world's most highly valued company, produces the complex semiconductor chips that are the heart of the AI frenzy. Despite its valuation, the demand for their chips is being restricted by the pushback on new data center construction and the pull back by investors. NVIDIA is loaning massive amounts of money to their customers to allow them to buy NVIDIA chips. Such circular financing concerns investors. Last month, as the value of their chips seemed to be peaking, NVIDIA did a $150B stock buyback, which makes their stock appear to grow, without regard to any real economic growth.
The wobble in the AI frenzy is not unique to America. In the last four months, China's AI and semiconductor stock plunged 40 percent. The Chinese robotics company Unitree lost half its value.
With trillions of dollars at stake, the popping of the AI bubble will be economically disruptive, perhaps larger than the 2008 housing crash. People are already gearing up to make sure the government will not bail out these firms with taxpayer money, as they did with banks in the housing crash. Despite evidence of risky, and perhaps even illegal actions in the chase for maximum returns, no banker went to jail, and the few regulations put in place after the crash have been removed since then.
Housing at least served a purpose in our society. AI has yet to justify such leniency. When the designers themselves warn of lethal consequences from their product, how can we justify paying off their bad debts? Ideal capitalism lets companies prosper and fail due to the real value of their product in the market place. But our economy is an end stage distortion of capitalism, where the profits accrue to the few, and the losses are charged to everyone else.
Stay tuned!
