The money went in one direction for years. Big tech bought back its own stock, signaling piles of spare cash and sending share prices higher. That was six months ago.
Now the direction has reversed. The same companies are borrowing to pay for artificial intelligence infrastructure.
The shift is sharp enough to make investors flinch. Consider the numbers. The five biggest tech firms on Wall Street are worth $18 trillion combined.
That is roughly the size of China’s entire economy. A sum that large, concentrated in five stocks, does not move gently.
Itaya Goldstein, a finance professor at Wharton, told reporters there are “many indications that we are in a bubble.” He called the overpricing likely. The recent volatility in tech stocks has brought that warning back to the front of investors’ minds. Some experts think a pop could be bigger than anything Wall Street has seen.
The backstory is less about AI itself and more about how the money gets shuffled around. A practice called circular financing has taken hold. Big tech companies pour cash into AI startups.
The startups then use that cash to buy the big tech companies’ own products and services. The money goes in a loop.
It looks like real demand. It feels like real growth. But Brent Fredberg, director of investments at Brandes Investment Partners, warned it “can lead to problems down the road.” The problems are not here yet.
The structure is. SpaceX, fresh off a blockbuster initial public offering, announced plans to issue $25 billion in bonds.
The news hit the stock price. It also raised questions about the company’s financial health. SpaceX is a space and AI giant now, but the bond sale suggests the cash burn is real.
The company is not alone. Across the sector, the borrowing has picked up. Fredberg called the debt levels “still relatively modest.” But the Federal Reserve has floated the idea of raising interest rates.
If rates climb, that modest debt becomes more expensive. The math changes fast.
Six months ago, the same companies were buying back shares. That is a classic move when cash is plentiful and executives want to reward shareholders. Buybacks inflate earnings per share and push stock prices higher.
Now the playbook has flipped. The money is going into data centers, chips, and research.
The payoff is uncertain. Goldstein said the overpricing seems likely. The market is betting that AI will transform the economy.
The bets are big. The debt is growing. The circular financing keeps the loop spinning.
No one knows when the music stops. But the structure is familiar.
Bubbles form when money chases a story. The story here is AI. The money is real.
The debt is real. The circular financing is real.
The question from investors is whether any of it will actually pay off. The answer is not in the report. The report only shows the shape of the thing.
The shape looks like a bubble. The professor said so. The debt reversal says so.
The bond sale says so. The rest is waiting.
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