Many METARs focus on the stock market. AI-related companies now represent 40% of the S&P500 which is a dangerous bubble in itself.
But stock bubbles can burst without causing a financial crisis. It’s debt that can cause a financial crisis.
https://www.wsj.com/finance/investing/wall-street-…
Wall Street Blows Past Bubble Worries to Supercharge AI Spending Frenzy
Firms such as Blue Owl Capital have raised trillions in investing firepower. The artificial-intelligence build-out is a perfect match, though warning signs are flashing.
By Matt Wirz and Peter Rudegeair, The Wall Street Journal
…
Silicon Valley’s biggest players are flush with cash and were able to fund much of the initial AI build-out from their own coffers. As the dollar figures climb ever higher, they are turning to debt and private equity—spreading the risks and potential rewards more broadly across the economy…
Investor appetite for data-center debt is so strong that some money managers have booked billion-dollar gains in a matter of days, even before construction of the facilities they are financing is complete.
Still, the longer-term performance is hardly assured. Big tech companies are expected to spend nearly $3 trillion on AI through 2028 but only generate enough cash to cover half that tab, according to analysts at Morgan Stanley. …
If the AI market blows up, the blast radius would be wide, hitting not only Wall Street firms, but also pensions, mutual and exchange-traded funds and individual investors, because of how debt is often sliced and resold across the financial landscape… [end quote]
This is what happened in 2008 when the housing bubble collapsed. Lenders were hurt all around the world because they had invested in supposedly-safe derivatives.
Wendy