On Saturday, The Daily Telegraph published an article by the papers technology editor, James Titcomb, headed ‘The tech “death spiral” that could destroy the AI boom.’
In this article Titcomb highlighted that: ‘In recent days, a stratospheric AI boom has been replaced by bubble fears as financial markets are jolted by a severe loss of confidence in many of the companies propping up the industry.’
The ‘severe loss of confidence’ was accelerated last week when a number of companies who have staked their economic lives on building vast data centres demanded to fuel the explosive expansion in AI have experienced massive sell-off by investors.
These companies, which include CoreWeave, Nebius and Iren, have borrowed billions in order to finance massive data centres.
CoreWeave, the largest of these so-called neoclouds, accumulated $32 billion of debt to fund 51 data centres but made just $4.6 billion in the first half of 2026.
Along with all the other neocloud companies, CoreWeave was able to run up this massive debt on the promise of untold riches in the future for the speculators.
On the basis that the appetite for more and more AI would continue indefinitely, these companies were able to borrow with no limit.
But the limit has now been reached, as the global economic crisis of capitalism has asserted itself over the fantasy espoused the capitalist class that AI offered a future from economic collapse by a bankrupt capitalist system.
According to a recent report in the Financial Times, the speculators who have invested billions in AI companies are increasingly ‘spooked’ by the realisation that the massive profits promised by AI have not been matched by their expectations.
The collapse under the weight of debt is not confined to the smaller neocloud companies like CoreWeave.
Earlier this month, the giant US computer chip maker and the largest company in the world Nvidia saw $350 billion wiped of its share valuation while the tech heavy Nasdaq exchange dropped by 5.5%.
Nvidia, along with tech giants Alphabet, Amazon, Apple, Meta, Microsoft and Tesla account for 35% of the US share market.
Raisah Rasid, a global market strategist at JP Morgan Asset Management, tried to downplay the sell-off as ‘a valuation reset, rather than the market questioning the efficiency of AI itself’.
Rasid did, however, admit that there were two real threats that could explode the AI bubble.
First, was the threat of open-source AI models from China that would undermine the hundreds of billions of dollars used to fund the American AI giants.
The second risk, according to Rasid, is the popular opposition to the building of giant data centres along with opposition to the use of AI by companies to cut jobs while causing harm to society in general.
Last week, Andrew Bailey, governor of the Bank of England, weighed in with yet another warning that the historic level of debt by the giant AI companies risks a collapse of the capitalist financial system but Bailey insisted ‘the big issue now is what I call public trust’.
Bailey said: ‘If we lose public trust, or don’t establish public trust, then that is going to make the financial position look more precarious.’
Bailey is scared that the working class internationally have no trust in a capitalist economy that is based today on the dream of an ever-expanding AI built entirely on massive debt.
Moreover, it is an economy that relies on building massive data centres that threaten to destroy entire communities and suck up vital energy and water supplies, all for the profits of a handful of multi-billionaire capitalists.
While AI undoubtedly holds potential benefits to humanity, in the hands of capitalism it remains a weapon to be used against the working class.
At the same time, the AI financial bubble has reached the point of an explosion that will crash the global financial system, with the working class of the world expected to pay the cost.
The only resolution to this crisis will come from the working class to smash capitalism by taking power and establishing a world socialist society where scientific advances benefit all humanity.
