AI’s Unchecked Ascent: A Mirage or a Sustainable Revolution?
Stock market valuations, especially in tech, have soared lately. Most of this excitement comes from wild optimism about artificial intelligence.
Dario Perkins, an economist at TS Lombard, isn’t so sure the AI spending boom guarantees long-term growth. He thinks the strong revenue and earnings we see might just be a clever form of “capex recycling.”
Basically, tech giants are using their existing investments and locking in big, multi-year contracts for AI infrastructure. That doesn’t always mean there’s real, organic demand driving all this.
The Illusion of AI Spending Strength
Perkins argues that the flashy financials from Microsoft, Oracle, Google, and Amazon aren’t just about customers clamoring for new AI products. Instead, a lot of this comes from these companies booking enormous, multi-year orders for AI hardware and services.
Oddly enough, two players—OpenAI and Anthropic—make up a huge chunk of these order backlogs. That kind of concentration makes the whole system feel a bit shaky, doesn’t it? If these few firms pull back on spending, everything could wobble.
The tech world seems to be walking a tightrope right now. All this growth depends on continued, massive investments in data centers and infrastructure.
If capital spending slows—maybe because of changing strategies, new regulations, or even a shift in mood—the whole thing could unravel fast. These strong quarterly numbers might just be hiding some serious fragility underneath.
Echoes of the Dot-Com Bubble?
Perkins sees some warning signs that feel all too familiar. For one, there’s more and more insider selling happening.
When insiders—people who know their companies best—start unloading shares, it often means they think the stock’s topped out. If that behavior spreads, it could mean trouble ahead.
Perkins can’t help but recall the dot-com era. Back then, a flood of IPOs let insiders and VCs cash out, especially after lock-up periods ended.
That wave of selling helped pop the tech bubble. Now, with big IPOs like SpaceX, Anthropic, and OpenAI on the horizon, we might see history repeat itself. If insiders use these public offerings as an exit, the risk only grows.
The Twin Pressures: Monetary Tightening and Insider Exits
We’re seeing some pretty ominous signs of monetary tightening these days. Persistent inflation has nudged a lot of central banks to rethink their easy-money stances, and they’re leaning toward interest rate hikes.
The Bank of Japan and the European Central Bank look set to join in. Markets already seem to expect another move from the U.S. Federal Reserve.
When interest rates rise, capital gets pricier. That shift can make investors pause and might cool off some of the more speculative rallies we’ve gotten used to.
The risk grows sharper when you add the chance of heavy insider selling right as major IPOs flood the market. And let’s not forget the tightening grip of monetary policy—it’s a lot to take in at once.
Perkins points out that these factors could make the current AI-driven rally a lot less sturdy than it looks on the surface. He isn’t calling for an instant market crash, but his tone feels like a warning.
Maybe the euphoria around AI is hiding some real vulnerabilities. If you ask me, it might be wise to keep a little skepticism handy, even if the headlines sound euphoric.
Here is the source article for this story: Bulls declare victory on AI, but two classic signs of a market top are looming