As the race for artificial intelligence (AI) dominance accelerates, says chief economist at Moody’s Analytics Mark Zandi is sounding the alarm about a growing financial risk that distinguishes the current technological boom from the dot-com era: massive corporate debt.
AI ‘overinvestment’ and rising debt
In a stark warning issued on Sunday via
While acknowledging that AI has the potential to “significantly increase productivity” and raise living standards in the long term, Zandi warned that the intervening period is fraught with danger.
He pointed to “rising AI stock prices” that already discount this future optimism, in addition to what he called “huge (over)investment” in data centers and infrastructure.
See also: Surviving the AI bubble: three factors that will distinguish future winners
Dotcom vs AI era
The economist’s main concern is not just the inflated stock valuation, but also the capital structure that is fueling the spending spree.
Zandi drew a sharp contrast between the current climate and the bursting of the Y2K bubble a quarter century ago. “When the Y2K bubble burst… the broader economic damage was limited because the losses were borne by equity investors,” Zandi wrote. “There wasn’t a lot of debt. That’s not the case with the AI boom.”
Data shared by Zandi illustrates a dramatic increase in lending by tech giants, including Microsoft Corp. (NASDAQ:MSFT), Metaplatforms Inc. (NASDAQ:META), Amazon.com Inc. (NASDAQ:AMZN)And Nvidia Corp. (NASDAQ:NVDA).
The chart shows a steep increase in bond issuance in 2024 and 2025, compared to relatively modest levels in 2022 and 2023. This increase suggests that major players are using their balance sheets to finance the voracious capital requirements of AI development.
A circle shock on AI investments
Zandi also flagged “incestuous financial relationships” between major AI companies as an additional layer of risk.
The worry is that if the AI bubble bursts, the fallout will not be limited to stock portfolios but could spread to credit markets, potentially tightening credit conditions and hurting the broader economy in a way that the 2000 crash did not.
Here is a list of some AI-linked investments that investors can consider.
| ETF name | YTD performance | One year performance |
| iShares US Technology ETF (NYSE:IYW) | 24.68% | 23.54% |
| Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) | 21.24% | 19.92% |
| First Trust Dow Jones Internet Index Fund (NYSE:FDN) | 10.55% | 10.31% |
| iShares Expanded Tech Sector ETF (NYSE:IGM) | 26.94% | 26.63% |
| iShares Global Tech ETF (NYSE:IXN) | 23.46% | 23.04% |
| Defiance Quantum ETF (NASDAQ:QTUM) | 30.74% | 52.61% |
| Roundhill Magnificent Seven ETF (BATS:MAGS) | 23.12% | 26.58% |
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Disclaimer: This content was produced in part using AI tools and was reviewed and published by Benzinga’s editorial staff.
Photo courtesy: Andrius Zemaitis / Shutterstock.com
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