As the race for artificial intelligence (AI) dominance accelerates, Moody's Analytics Chief Economist Mark Zandi is sounding the alarm on a growing financial risk that sets the current tech boom apart from the dot-com era: massive corporate debt.
AI ‘Over-Investment’ And Soaring Debt
In a stark warning issued via X on Sunday, Zandi highlighted that bond issuance by the top 10 AI companies is projected to hit a record $120 billion this year, creating a leverage problem that could inflict broader economic damage than previous market corrections.
While acknowledging that AI holds the potential to “significantly boost productivity” and lift living standards in the long term, Zandi cautioned that the interim period is fraught with peril.
He pointed to “soaring AI stock prices” that already discount this future optimism, alongside what he termed “massive (over) investments” in data centers and infrastructure.
See Also: Surviving The AI Bubble: Three Factors That Separate Future Winners
Dotcom Versus AI Era Leverage
The economist’s primary concern is not merely inflated stock valuations, but the capital structure fueling the spending spree.
Zandi drew a sharp contrast between the current environment and the bursting of the Y2K bubble a quarter-century ago. “When the Y2K bubble burst… the broader economic damage was limited as the losses were borne by equity investors,” Zandi wrote. “There wasn't a lot of debt. That's not the case with the AI boom.”
Data shared by Zandi illustrates a dramatic ramp-up in borrowing by technology giants, including Microsoft Corp. (NASDAQ:MSFT), Meta Platforms Inc. (NASDAQ:META), Amazon.com Inc. (NASDAQ:AMZN), and Nvidia Corp. (NASDAQ:NVDA).
The chart reveals a steep climb in bond issuance in 2024 and 2025 compared to relatively modest levels in 2022 and 2023. This surge suggests that major players are leveraging their balance sheets to fund the voracious capital requirements of AI development.
A Circle Jerk On AI Investments
Zandi also flagged “incestuous financial relationships” between major AI firms as an additional layer of risk.
The concern is that if the AI bubble bursts, the fallout won’t be contained to stock portfolios but could spill over into credit markets, potentially tightening lending conditions and hurting the broader economy in a way the 2000 crash did not.
Here’s a list of some AI-linked investments for investors to consider.
| ETF Name | YTD Performance | One Year Performance |
| iShares US Technology ETF (NYSE:IYW) | 24.68% | 23.54% |
| Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) | 21.24% | 19.92% |
| First Trust Dow Jones Internet Index Fund (NYSE:FDN) | 10.55% | 10.31% |
| iShares Expanded Tech Sector ETF (NYSE:IGM) | 26.94% | 26.63% |
| iShares Global Tech ETF (NYSE:IXN) | 23.46% | 23.04% |
| Defiance Quantum ETF (NASDAQ:QTUM) | 30.74% | 52.61% |
| Roundhill Magnificent Seven ETF (BATS:MAGS) | 23.12% | 26.58% |
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Andrius Zemaitis / Shutterstock.com
