A leading economist has stated that AI firms' borrowing activities pose a 'growing possible danger to the financial system.' 

Even when accounting for inflation, major technology firms are releasing more bonds than they did in the late 1990s. Furthermore, these corporations are not solely restructuring their current obligations; they are also incurring new liabilities.

“While the increasingly aggressive (and creative) borrowing by AI companies won’t be their downfall, if they do fall short of investors’ expectations and their stock prices suffer, their debts could quickly become a problem,” Zandi wrote. 

“Borrowing by AI companies should be on the radar screen as a mounting potential threat to the financial system and broader economy.”

The 10 largest AI companies, including Meta, Amazon, Nvidia and Alphabet, will issue more than $120 billion this year, Zandi said in a LinkedIn analysis last week.

He noted that this situation differs from the dot-com era's debt offerings, as internet firms at that time possessed minimal debt, being financed instead through equity and venture capital.

“That’s not the case with the AI boom,” Zandi added.

Despite the capacity of tech giants such as Amazon, Google, Meta, and Microsoft to fund AI development from their earnings, issuing bonds represents the “cheapest and cleanest” method for financing infrastructure projects of this magnitude. Such an undertaking is anticipated to span over ten years and amount to trillions of dollars, according to Shay Boloor, the chief market strategist at Futurum Equities, who spoke with Coins2Day.

“These companies are a lot more comfortable issuing 10- to 40-year papers, for example, at very low spreads, because the market now views them as quasi-utility names—because they’re building all this infrastructure—not just a pure tech company anymore,” Boloor said.

He further stated that over the preceding half-year period, technology firms have demonstrated “proof in the pudding” that the upcoming need for AI is experiencing rapid growth.

Notwithstanding worries about an AI boom, Nvidia reported robust earnings report for its third quarter in the preceding month, stating that its AI data center income grew by 66% compared to the prior year. 

Still, critics warn that the buildout may not keep up with how rapidly AI is developing.

The components for AI data centers, representing a significant portion of their expense, might be more prone to becoming outdated and superseded by newer advancements during the AI surge compared to wireless and internet infrastructure, a substantial amount of which remains functional presently, George Calhoun, a professor and head of the Hanlon Financial Systems Center at Stevens Institute of Technology, informed Coins2Day.

“The cycle of innovation in the chip industry is much faster than for wireless technology or fiber optics,” he said explained. “There is a real risk that much of that hardware may become competitively disadvantaged by newer technologies in a much shorter timeframe,” before being fully paid off.

Meanwhile, major companies involved in the AI surge, specifically OpenAI, lack the current earnings to offset their substantial expenditures, thereby elevating their exposure, according to Calhoun.

“If OpenAI fails, the snowball effect of that is gonna be substantial,” Futuruum Equities’ Boloor said. Though larger tech companies won’t likely be impacted much by a potential OpenAI bust, companies that largely rely on its business like Oracle could, he added.

Nevertheless, Boloor maintains a positive outlook regarding the AI expansion, asserting that the primary obstacle to its achievement is the United States' energy infrastructure.

“I think that the risk is that trillions of dollars of AI capacity gets built faster than the North American grid can support it, which could slow realization,” he warned.