Prominent analysts are drawing comparisons to the dot-com bubble from over two decades ago, during which nascent dot-com firms wagered on rapid adoption of the internet, betting it would yield sizable profits in short order. When tech stocks tanked, cash-starved dot-com start-ups floundered soon after. Some investors fear living through a similar replay with AI.
“There are so many companies counting on the data center for their earnings,” CNBC host Jim Cramer said on the air. “If the market decides it doesn’t want to fund any more data centers, and the companies themselves don’t have the money, or they don’t get paid, then we’re back in 2000.”
He added: “I lived through 2000. I don’t want the sequel.”
Circle-shaped risks
So far, Nvidia is betting that its staggering spending will pay off, given the unchecked appetite among hyperscalers for all types of semiconductors to power their data centers. Wall Street analysts, though, are observing that capital is increasingly circulating among the same batch of companies who sometimes serve as both financier and supplier.
“While strategic equity stakes in emerging technologies have been common among established tech companies, the degree of interdependence among AI labs, hyperscalers, semiconductor suppliers and sponsors is greater than traditional venture capital relationships, representing a more circular system that could mask true demand,” Moody’s Analytics said in a report published in July.
For investors attempting to gauge the risks to their portfolio, these circular arrangements are causing some to expand their holdings beyond AI companies and the tech sector. Diversifying serves to fortify investments against an unexpected disruption in the AI ecosystem.
“We continue to caution investors not to become too concentrated in technology,” Miramar Capital co-founder Max Wasserman told Yahoo Finance late last year.
‘The ultimate test’
Being able to determine a firm’s ability to break out of its circular arrangement and generate profits with clients led one AI analyst to dub it as “the ultimate test” for investors in the AI boom.
“AI companies must eventually generate revenue from external clients outside the Big Tech circle to pay off their massive infrastructure debts,” wrote Ege Eksi of Seedscope AI, an AI valuation platform, in a blog post. “The transition from capital-fueled growth to genuine, customer-driven utility is the ultimate test.”
Joseph Zeballos-Roig is a policy and politics journalist based in Washington D.C with a focus on economics. He is experienced in connecting the significance of events in the capital to the lives of everyday Americans whether its taxes, tariffs, interest rates or federal programs.
