Is the AI Stock Market Boom Nearing Its End?
The Nasdaq 100 dropped by 5.5% last week, wiping down the index of the 100 biggest non-financial stocks on the American tech-heavy exchange and igniting fresh questions over whether this year’s estimated $US1tn global investment in artificial intelligence rests on a fragile foundation, The Guardian reported.
That sharp pullback follows a period of aggressive corporate borrowing to fund massive data center construction and digital infrastructure. American hyperscalers including Amazon, Microsoft, Google, and Apple spent $US425bn in AI-related capital expenditure in 2025. According to Gerard Minack of Minack Advisors, these firms are on track to invest $US800bn this year and more than $US1.1tn in the next.
AI Corporate Bonds Grow to 10% of Credit Market
The fast-growing financialisation of the AI sector has pushed corporate bonds issued by these tech giants to nearly 10% of the global investment-grade credit market, a steep climb from just 0.5% at the end of 2024, as cited by the International Monetary Fund. The IMF recently placed the potential bursting of the AI investment bubble at the top of a trio of global economic risks, alongside rising borrowing costs and major cyber-attack threats.
Despite the recent market jitters, the Nasdaq 100 remains valued at nearly three times its level at the start of 2023. On the S&P 500, tech titans Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla now account for 35% of the index, a dramatic increase from 12% a decade ago. Total market capitalization for these seven companies has expanded by more than 50% over the past two years.
Raisah Rasid, a Singapore-based global market strategist at JP Morgan Asset Management, described the recent market action as a valuation reset rather than a fundamental rejection of AI utility. Rasid noted that this structural transformation differs significantly from the dotcom era, though she highlighted two potential threats: open-source models from competitors like China undercutting the economics of hundreds of billions in investments, and rising public opposition to heavy data center development.
Market Contraction and Regional Impacts
The recent market cooling began with the failed initial public offering of Firmus, an Australian data center company attempting to list on the ASX. The multi-billion dollar listing was initially projected to value the firm higher than Telstra before generating its promised earnings, serving as a wake-up call for global investors examining unproven valuations.
While I am becoming more confident that returns on AI investment will disappoint, I have no confidence calling the precise top of the AI market.
Gerard Minack of Minack Advisors said his view was that investors were fundamentally overestimating the returns that AI providers will be able to deliver.
Sally Auld, chief economist at NAB, pointed out that historical technological revolutions like the internet and railroads consistently experienced overbuilt capacity phases. Auld noted that current market behavior reflects investors adopting a more balanced approach rather than abandoning the trade entirely. Commonwealth Bank of Australia economists project up to $150bn in data center investment domestically by 2030, and $260bn by the mid-2030s, though Auld emphasized that Australia remains outside the epicenter of any potential international bust.
As upcoming US quarterly earnings approach, analysts continue to monitor growing circular financing arrangements—where hardware manufacturers help fund data center construction in exchange for guaranteed microchip purchases—to determine whether underlying demand matches the massive capital commitments.