AI Bubble Warning: Wall Street Analysts Clash Over Concentrated Tech Spending and ‘Circular’ Financing

Top Wall Street analysts are sounding an increasingly urgent alarm over a potential ‘AI bubble,’ warning that the U.S. equity bull market’s remarkable run is precariously dependent on massive, concentrated spending in artificial intelligence infrastructure. Morgan Stanley Wealth Management’s chief investment officer, Lisa Shalett, on September 29, described the current market boom as a “one-note narrative” fueled almost entirely by generative AI capital expenditures, raising concerns about its durability.

Shalett highlighted a significant concentration of market gains, with a small group of AI-related companies accounting for roughly 75% of the S&P 500’s returns since the rally began. She drew parallels to the dot-com bubble’s “Cisco moment” and expressed worry over what she terms “circular” financing, particularly involving Nvidia. Shalett pointed to recent multi-billion-dollar deals, including Nvidia’s reported $100 billion investment in OpenAI and OpenAI’s subsequent deals with Oracle and AMD, suggesting Nvidia, as the “guy at the epicenter,” is engaging in practices reminiscent of “bad actors in the final inning” by effectively financing its partners and even competitors.

Nvidia CEO Jensen Huang, speaking on September 25, defended the OpenAI investment as an “opportunity to invest” and a strategic partnership to build AI infrastructure, funded by OpenAI’s exponentially growing future revenues. A spokesperson for Nvidia stated, “We do not require any of the companies we invest in to use Nvidia technology.”

While acknowledging the “optics” of vendor financing, Bank of America’s senior analyst Vivek Arya offered a more tempered view, arguing that deals like Nvidia’s commitment to OpenAI are structured by performance and competitive need, not pure speculation. Arya believes the $100 billion figure for the OpenAI deal is misleading, noting it involves multiple tranches over several years, and remains bullish on Nvidia and OpenAI as ecosystem winners.

Concerns about market exuberance are echoed across the industry. Goldman Sachs CEO David Solomon and Jeff Bezos both noted similar patterns to past booms and busts, with Bezos characterizing it as “kind of an industrial bubble.” OpenAI CEO Sam Altman admitted to an inevitable cycle of “booms and busts” in the decades ahead. Dot-com era Cisco CEO John Chambers, on October 3, warned of “irrational exuberance” similar to the internet age, indicating a “future bubble for certain companies” that fail to convert technology into sustainable competitive advantage.

Shalett’s analysis suggests AI capital expenditure maturity is approaching, with signs like negative free-cash-flow growth for hyperscalers. She warns that the current cycle is “fragile” due to its heavy reliance on AI infrastructure buildout, raising questions about whether the eventual slowdown will lead to a mild recession or something more severe.

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