Why This AI Cycle Might Just Be Different

International | 11:37 AM

AI investment has collided with a technology stock market melt-up prompting a cri-de-coeur of 'bubble'.

-Bubble warnings clash with evidence of self-funded growth as tech giants pour cash into AI
-Hyperscaler capex surges to record levels, underpinning the global data centre build-out
-Productivity gains emerge across finance, healthcare and retail as AI adoption accelerates
-China’s AI Plus Initiative signals global competition, with trillions in digital investment ahead

By Danielle Ecuyer

Bubble warnings meet a stock market melt up

Media have been flooded with speculation and experts opining on the "AI technology bubble", drawing comparisons to the Dot-Com internet crash as evidence investors have been drawn into a similar paradigm of 2025's modern day boom and bust cycle driven by FOMO and irrational euphoria.

Value investor Porter Collins, one of Steve Eisman’s team who bet against the US housing market and collateralised debt obligations prior to the 2007 GFC crash, tweeted on the back of a US$100bn deal between the world’s largest company Nvidia and OpenAI,

“This is no doubt a positive for both companies in the near term, but this is close to full Ponzi”.

'Ponzi' because of the circularity of the deal whereby Nvidia has invested US$100bn in OpenAI who will in turn invest in 10GWs of data centre capacity using Nvidia hardware. For context, Nvidia’s market capitalisation is tickling all time highs of US$4.59trn at US$188.89 per share and has generated cash flow from operations of almost US$70bn in 1H26.

Concerns around AI and the associated investment spend coincide with US technology stocks continuing to drag major US indices higher over the last quarter, and more surprisingly for some, over the often-volatile month of September.

The S&P500 rose 3.53% last month, the strongest September performance in 15 years, for a quarterly return of 7.79%. Nasdaq was the outperformer, up 5.61% in September and 11.24% over the quarter against a backdrop of ongoing macro concerns on tariffs, the US government shutdown and rising global geo-political risks.

Chinese big tech had an even more pronounced bullish surge, led by Alibaba and Tencent. Alibaba Cloud reported 26% revenue growth in its latest quarterly report and is reported as having 33% market share in China’s cloud infrastructure market.

As previously discussed in FNArena's ongoing GenAI series (available at https://fnarena.com/index.php/tag/gen-ai/), the financial metrics around AI spend and the associated ancillary infrastructure are eye-wateringly large and at such scale, the nominal numbers almost become meaningless.

However, the rate of growth and change as of now has shown no signs of abating. For every bear calling the doomsday bell on AI and technology stocks, there are a suite of analysts crunching the latest numbers on the outlook for data centres, a major theme for Australian investors.

Before our readers jump off the AI narrative, maybe another glance is justified according to the most recent research insights and updates on this matter.

Are historical precedents clouding judgment?

Prior to taking a deep dive into the findings, a presentation by Tom Lee of Fundstrat on his General Principles for Investing focused on a topic that was also highlighted some years back by Hamish Douglas, formerly of Magellan, on cognitive bias.

Lee framed it as “Stop carrying a ‘Lehman hammer’” to avoid cognitive bias. In the context of what Porter Collins tweeted as a value investor, Lee is a renowned growth investor.

One could do worse than contemplating the possibility of bias once share prices have risen, resulting from historical experience and events like the GFC, which for many was a traumatic experience.

Billionaire founder of Amazon, Jeff Bezos was recently interviewed and asked about AI and investment bubbles at Reuters' Italian Tech Week.

What follows is a snap shot which sheds some of Bezos' thoughts on what seems to be happening today.

"Benjamin Graham, the great investor, is famous for saying in the short term the stock market is a voting machine; in the long term it's a weighing machine and so as founders and entrepreneurs and business people our job is to build a heavy company.

"We want to build a company that when it is weighed it is a very heavy company. We do not want to focus on the stock price and so that is, you know, that will be misleading because it can be disconnected from the fundamentals and when bubbles happen. So that's one thing that happens. 

"The second thing that happens when people get very excited as they are today about artificial intelligence, for example, is every experiment gets funded. Every company gets funded. The good ideas and the bad ideas. And investors have a hard time in the middle of this excitement distinguishing between the good ideas and the bad ideas. 

"And so that's also probably happening today. But it doesn't mean that anything that's happening isn't real. AI is real and it is going to change every industry. 

"In fact, it's a very unusual technology in that regard in that it's a horizontal enabling layer. Today we talk about AI first companies like OpenAI an Anthropic and Mistral and so. There are so many startup companies that are kind of AI companies of various kinds and that's normal for this phase. 

"But that is not the biggest impact that AI is going to have. The biggest impact that AI is going to have is it is going to affect every company in the world. It is going to make their quality go up and their productivity go up. I mean every company, literally every manufacturing company, every hotel, every you know consumer products company etc. And so that is hard to fathom, but it's real.

"There is no doubt we don't know how long it will take exactly. We don't know how quickly that transition will occur, and it'll probably occur at different rates in different industries. But that is very real."

The interview is available in full: https://www.youtube.com/live/4wTSZDZ_seU?si=yJyIhqjlkPhDImt4

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