Cédric Durand in Sidecar:
The stock market valuation of AI-related firms has increased tenfold over the past decade. As John Lanchester noted recently, all but one of the world’s ten largest companies are connected to the future value of artificial intelligence. All but one of those are American, and together their value is equal to well over half of the US economy. Over the past few years, anticipation of the AI ‘revolution’ has driven a surge in investment in these US tech companies. Promises of a radical breakthrough in post-human intelligence and miraculous productivity gains have captured the animal spirits of investors to the point where, as the FT’s Ruchir Sharma [put it](https://www.ft.com/con…
Cédric Durand in Sidecar:
The stock market valuation of AI-related firms has increased tenfold over the past decade. As John Lanchester noted recently, all but one of the world’s ten largest companies are connected to the future value of artificial intelligence. All but one of those are American, and together their value is equal to well over half of the US economy. Over the past few years, anticipation of the AI ‘revolution’ has driven a surge in investment in these US tech companies. Promises of a radical breakthrough in post-human intelligence and miraculous productivity gains have captured the animal spirits of investors to the point where, as the FT’s Ruchir Sharma put it, ‘America is now one big bet on AI’. Fixed investment in the sector is so enormous that it was the primary driver of US growth in 2025. The training and operation of AI models requires a huge physical build-up of data centres, computing equipment, cooling systems, network hardware, grid connections and power provision. Tech firms are expected to spend a staggering $5 trillion on this costly infrastructure – which is still mostly concentrated in the US – to meet expected demand between now and 2030.
The problem is that the numbers do not add up. To meet its colossal financial needs the sector has shifted from a model dominated by cash-flow and equity financing to debt financing. In principle, this turn to debt could simply reflect growing profit opportunities and the anticipation of forthcoming prosperity. Increasingly exotic financial deals suggest otherwise. A large part of the hype is fuelled by financial loops in which suppliers invest in their clients and vice versa. OpenAI is a case in point. Its leading chip provider, Nvidia – the most valuable company in the world – is planning to invest $100 billion in OpenAI, effectively funding demand for its own products. OpenAI, meanwhile, is spending almost twice what it earns on Microsoft’s cloud platform Azure, which provides the computing power to run its services, thereby enriching its main backer while accumulating debt.
More here.
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