Financiers and commentators warn of AI bubble and debt risks as US midterms near

Left · 1The Los Angeles Times reported on 25 October that some of the world's leading financiers are sounding increasingly alarmed about an AI bubble, weeks before the US midterm elections. 1 Left · 1It said Ray Dalio of Bridgewater Associates has warned that AI stocks have become detached from financial fundamentals, and that Ken Griffin said AI is "almost certainly" fueling a market bubble that could be on the verge of a burst. 1 Left · 1The paper said about 70% of the Nasdaq 100's index weight sits in companies that depend on AI, and that, according to independent analyses, data centre spending accounted for nearly all US economic growth last winter and spring. 1

Left · 1Harvard economist Kenneth Rogoff said a 30% or larger stock market drop is plausible and could lead to recession, and that limited government finances would constrain options for bailouts; Servaas Storm of Delft University of Technology said the bubble could pop before the end of Trump's presidency, though not imminently. 1 Left · 1The LA Times argued that Trump's AI push, together with tariffs, visa restrictions and large deficits, has left the economy exposed; it reported he dismissed AI concerns publicly but privately worried that hysteria could jolt AI-concentrated markets. 1 Left · 1It cited a Fox News poll in which 77% rate the economy fair or poor, a CNBC survey with 34% approving of Trump's handling of the economy, and inflation of 3.7% under Trump versus 2.9% at the end of Biden's presidency. 1

Left · 1The LA Times also said Anthropic plans an IPO next month and OpenAI expects to list next year, and, citing Axios, that leading AI companies are running "day-after" drills for an AI-related crisis within the next year. 1 Left · 1Stanford finance professor Darrell Duffie cautioned that financial crises are "virtually impossible to predict". 1 Left · 1In an ABC Australia column on 26 October, Ian Verrender said investors face a "double dose" of debt worries: government borrowing and a debt-funded AI boom, with borrowing costs repriced sharply over the past eight weeks. 2

Left · 1He wrote that US debt is 126% of economic output, about US$40 trillion with annual interest topping US$1 trillion, and that markets expect a Federal Reserve rate rise in December, though not at the meeting this week. 2 Left · 1The column listed recent AI-linked setbacks: the Firmus float flop, a 42% share price fall at NextDC after Melbourne residents delayed a data centre, Goodman Group cancelling a Sydney data centre, and a 36% one-month drop in CoreWeave's stock. 2 Left · 1It said the Nasdaq had its worst fortnight since April, that a Gallup poll found 71% of Americans oppose data centres, and that Alphabet, Amazon, Meta and Microsoft have raised more than US$200 billion in debt this year, with Nvidia raising more than US$80 billion. 2

Left · 1ASIC commissioner Simone Constant said the regulator is focused on resilience and transparency and is seeing spread and volatility movements not seen for a long time; Verrender noted this would not stop a crash but could limit regulators being blindsided, and that some argue trouble in one area of debt could ease the other as rates fall. 2