Report - Brace for Impact: Protecting People and the Economy when the AI Bubble Bursts
The artificial intelligence (AI) boom represents one of the largest speculative frenzies in history. The ten most valuable U.S. companies are all tech giants. And most U.S. tech giants — including Alphabet, Amazon, Meta, Microsoft, Oracle, and SpaceX — are at the center of a multi-trillion-dollar spending spree on data centers and related infrastructure to train and run generative AI models. With tech companies spending drastically more on AI infrastructure than they are earning from selling AI products and services, however, even the biggest AI companies have begun borrowing heavily to cover AI’s extraordinarily high costs.
That skyrocketing debt means that AI giants will need to earn multiples more in revenue than they are earning now to cover their spending. If the AI industry can’t pay back its mounting debts, a financial crash could follow — and it could spread well beyond the tech sector.
Speculative data center debt is being repackaged and sold to pension and retirement funds, university endowments, and other institutional investors in a manner eerily reminiscent of the subprime bubble. Private equity firms have purchased life insurers and loaded them with risky debt, exposing policyholders and the public to losses and raising the threat of financial contagion.
Rather than address these mounting risks, the Trump administration and federal financial regulators are ripping up regulatory guardrails and exacerbating the harms a potential crisis would cause. They must dramatically reverse course to reduce the likelihood of disaster. Regulators, Congress, and state policymakers should instead act swiftly to shine a light on the AI industry’s murky finances, stop contributing to the inflation of the bubble with subsidies and regulatory giveaways, better protect working people’s retirement savings from outsized risk exposure, and strengthen the resilience of the financial system to protect households’ economic security and the broader economy’s stability.
This report’s purpose is not to predict a specific sequence of events or portray an economic crisis as inevitable. It is instead to argue that the ingredients for a serious crisis are in place, explain why inaction regarding the growing risks would be a dangerous mistake, and describe the steps that policymakers should take to mitigate the growing threats to economic stability. Time is running short.
Read the report here or listen to a recording of the report here.