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Opinion
Why the clock is ticking on the Fed-fuelled AI bubble
AI is being sold as the latest tech frontier and a key area of US-China competition, but one day the money inflating the bubble will run out
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Dr Andy Xie is a Shanghai-based independent economist specialising in China and Asia, and writes, speaks and consults on global economics and financial markets.
The AI bubble is entering extra time by walling in money and sharing it among key players. As profitable firms plug money back into loss makers, the net cash requirement for the bubble circle is being minimised for the collective loss. The next step is for profitable companies to sell stocks to raise cash and pump it into loss makers.
However, this extra time is likely to be measured in quarters, not years. It is possible that the US government will pump borrowed money into the bubble next, which could eventually destroy the market for US Treasuries.
WorldCom was caught committing financial fraud during the dotcom bubble. Fraud might appear to be an important source of money to keep these bubbles going, but if Cisco had invested massive amounts of money into WorldCom, there would have been no need for fraudulent activity. It seems the dotcom bubble players were not very sophisticated; otherwise, none would have gone to jail.
Nvidia recently reached an agreement to invest US$100 billion in OpenAI to support new data centres and other AI infrastructure. On its balance sheet, US$100 billion in cash will switch to an equity stake in OpenAI, while its chip order book is likely to rise by more than US$100 billion as the money could be leveraged by OpenAI in a leasing deal. Wall Street will hail the good news for Nvidia and push its share price higher.
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