Alphabet lost well over half a trillion dollars in market value last week, suffering the biggest market-value drop in its history. The selloff has sharpened an uncomfortable question for AI investors: how much spending reflects independent customer demand, and how much comes from money circulating between companies backing one another?
For years, some of the biggest AI companies have invested in smaller startups that then spend that same money on their investors’ services. Those transactions bring business to the larger companies, but tie it to their own financial support. Investors have watched this circular financing with quiet but growing anxiety.
The Wall Street Journal describes a “tangled web of AI bets” whose connections could make a bursting AI bubble especially damaging. With fears of a sudden collapse running high, the concern isn’t just that individual companies might be overvalued. A setback could spread through the relationships connecting them.
Most of these companies’ fortunes are closely linked through circular financing. A major economic downturn or weakening demand could trigger cascading repercussions, particularly because much of the sector’s financing rests on debt. The risk goes beyond one bad earnings report: interconnected commitments could spread financial pressure across firms.
Data center operators are already drawing scrutiny. Nvidia customer CoreWave has seen its shares decline over months, with analysts calling it the “AI trade’s canary in the coal mine”. Its stock-market rout has raised further warning flags, spreading the unease beyond the largest tech companies.
Futurism’s coverage of the broader market crash argues that the stakes reach beyond tech portfolios because AI investment is effectively propping up the US economy. On that assessment, an industry failure could have far-reaching consequences for a public already increasingly skeptical of AI’s offerings. That’s an argument about economic exposure, not proof that a collapse is inevitable.
Yet enormous data center expansion projects continue despite the financial unease and major bipartisan backlash. Futurism describes the commitment as an unprecedented all-in bet, warning that its collapse could jeopardize the entire economy.
The anxiety extends to Asia, too. The Bank of Korea recently warned of a “semiconductor version of Dutch disease,” an economic condition in which one booming sector overtakes all other tradable market segments. The warning adds the risk of national dependence on one sector to investors’ concerns about circular financing.
South Korea is nevertheless doubling down. On November 2, President Lee Jae Myung pledged to “boldly invest in AI and future growth engines,” with the country effectively doubling AI and chip spending for next year. Whether that’s the right move remains uncertain as more investors grow wary. South Korea is increasing its exposure just as the financing behind the AI buildout faces closer scrutiny.
