Commentary: Is the AI stock bubble finally bursting?

AI WAS ON THE US BALLOT PAPER

As the Bank for International Settlements recently pointed out, nearly 29 per cent of AI firms’ investment deals are in other AI firms, and more than half of incoming investment in AI firms comes from other AI firms. In a crisis, circular financing can easily turn into a circular firing squad. 

All of this has been true and widely accepted to be the potential nexus of a correction for months. We have just never really known what would be the trigger.

US politics may finally be that thing. The initial reaction to this week’s historic US midterm elections, which delivered thumping victories for the Democratic Party across Congress and in state-level positions, was very positive. 

Stocks sailed higher all around the world, partly in relief that the result was unambiguous and uncontested, partly in hope that we could make markets normal again with stronger checks and balances to a capricious president, and partly on the sense that the elections could bring forward the end to the apparently senseless war in Iran.

The price of oil tumbled under US$100 a barrel, having stood as high as US$118 at the end of last month, after voters across the US sent a strong message that they were fed up with war-driven high energy prices jacking up the cost of living (and of driving). The market’s judgment is that one way or another, the war has to end, and fast.

But the good vibes in markets lasted all of a day. That is because the other thing voters made clear was that they do not like AI, and specifically that they do not want enormous energy- and water-guzzling data centres built in their neighbourhoods. 

AI itself was on the ballot across multiple states, with measures seeking views from voters on whether to delay or restrict data centre developments. Voters stuck up two fingers at Big Tech almost every time. A much tougher regulatory and permitting framework lies ahead for a sector holding up an alarming amount of sky in the US economy and in global markets.