AI Expansion: Boom or Bubble?

The rapid development in artificial intelligence over recent months has stirred plenty of conversations between industry experts, investors, and consumers. As a result, analysts seek to understand whether AI will be a long-term application to businesses and consumers or if the buy-in for this technology will come crashing down. Not only are U.S. companies investing heavily in the future, like OpenAI committing to spending $1.4 trillion on datacenters in the coming years, but sovereign wealth funds are also utilizing AI to position themselves as leaders in the global economy. For example, Saudi-backed HUMAIN and Blackstone agreed to a $3 billion deal to build data centers in Saudi Arabia. This is all great news for economic development - but what happens if it all fails?

Betting on AI

A recent Market Watch article documents how estimates expect Big Tech (NVIDIA, Google, Meta, etc.) capital expenditures on AI to reach $2.9 trillion by 2028 and that these hyperscalers only have $1.4 trillion in cash to pay for these infrastructural investments (e.g., data centers). The other $1.5 trillion will have to come from corporate and high-yield bonds. By borrowing huge sums of cash to invest in these projects, these firms are taking on a lot of risk by magnifying the outcomes of their winnings or shortcomings. The winners could profit trillions, but the losers will likely go out of business, bankrupt, and become obsolete.

In the short-term, the Magnificent 7 companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) investing in and borrowing from each other to develop AI has benefitted the companies and executives of these companies. The Magnificent 7 have continued to dominate the AI narrative in 2025, accounting for 36.4% of the S&P 500’s total market capitalization, with 4 of the 7 companies’ stock prices increasing over 22% in the current year. Stanford’s AI index notes that business adoption of AI rose to 78% in 2024 from 55% in previous years, proof that AI is becoming applicable and important in the majority of businesses and everyday life. This might be great for shareholders and executives in the short-term, but what if AI doesn’t follow the path that technology leaders say it will? After all, it is important to consider the feasibility of investing trillions of dollars into data centers and energy that may impact regional energy prices and contribute to climate change. In addition, we need to think about the ethics of AI. With the Magnificent 7 companies investing and focusing heavily on AI, a short-coming in the AI industry can lead to stock dips that will have an immense impact on the overall financial market given its heavy exposure.

The Geopolitics of AI - Semiconductors

China is growing into a stronger competitor with the U.S. and its allies in the production of semiconductors, which are the foundation for microchips used for modern electronic devices like computers. To limit China’s capabilities in this market, the U.S. sets various export controls on semiconductor sales to China, including restricting companies like Nvidia from selling chips to China. Unfortunately, this reduces U.S. chipmakers’ revenues, lowering their R&D investment capabilities and reducing industry employment. Some experts suggest that the U.S. should keep export controls to a minimum in an effort to minimize profit loss, continue research into AI, and keep jobs for American workers.

Ultimately, the massive flow of capital in the AI and technology industries has captured the attention of investors and consumers worldwide. With trillions of dollars planned to be invested into datacenters and AI infrastructure, the sector has valuable potential to increase economic growth and improve everyday lives. However, these large investments raise concerns over the risk these big companies like Nvidia, Alphabet, and Meta are taking on, and if these AI projects fail, how will the larger financial markets react? Not only are companies taking advantage of this AI investment explosion, but large nations like the U.S. and China are fiercely competing in the semiconductor industry to make the most of this promising technology. Only time will tell whether the AI industry will continue to succeed or eventually pop, but as Jeff Bezos puts it, “This is real, the benefits to society from AI are going to be gigantic.”