The AI boom

Nice highlight by Rohan Paul on X summarizing some research on the sustainability of the current AI bull market. According to Deutsche Bank, the current AI boom is NOT sustainable. AI capex is now so massive it is keeping the U.S. out of recession, the bank said. Full article.

Separately, Bain & Co. estimate there will be an $800 billion shortfall in the revenues needed to fund the demand for AI computing power. About half the S&P 500’s gains this year have been driven by tech stocks.

Underlying real GDP growth excluding tech spending sits around 0% in 2024 to 2025, which implies the economy is hovering near recession.

The current lift mostly comes from building data centers and power supply, not from AI software output, so the driver is construction and equipment orders.

Deutsche Bank says the tech cycle would need to keep accelerating quarter after quarter to keep adding to GDP, which is what parabolic implies, and that path is unlikely.

Bain calculates that by 2030 the sector would need $2T in annual revenue to fund the computer yet even with savings the world is $800B short.

Goldman expects productivity from AI to lift GDP by about 0.4% per year soon and 1.5% in total as adoption spreads, so a softer landing is possible.

The balanced read is that productivity gains will arrive but not fast enough to justify parabolic capital expenditure.

Looking deeper into tech funding. AI giants are loading up on debt: U.S. corporate-bond sales have surged to historic levels as firms rush to borrow while costs fall.

Investment-grade issuance topped $190B in September, while junk bonds hit their busiest month since 2021 at $43B.

Oracle led the charge with a $26B deal, drawing nearly $88B in demand. That sale alone pushed its debt-to-equity ratio above 500%, by far the highest among AI peers.

Tech firms overall have raised $157B YTD in the bond market, the most since 2020. That’s up 70% vs 2024 and more than double 2023.

Apple, IBM, and others are also piling on leverage as investors chase yields and spreads tighten to near 30-year lows.

AI isn’t just transforming markets; it’s financing itself with record debt.

Any resemblance with the dotcom bubble? Judge for yourself.

And last, just one more hint to equity bubbles. Is it different now?

Sources: Fortune, Rohan Paul on X, Charles-Henry Monchau, Alex Knight, Bloomberg, JPMAM, @_investing, StockMarket.news, Spencer Hakimian, BofA, GFD, Odlyzko