Nasdaq 100 falls 5.5% as IMF cites AI investment bubble among top global risks

Hyperscaler AI debt rises to nearly 10% of global investment-grade credit

The Nasdaq 100 dropped 5.5% last week before U.S. technology shares recovered in Monday’s Wall Street trade. The recent rot may have started with the failure of Firmus, an Australian data-center company, to list on the ASX; the multi-billion-dollar IPO was, at one stage, on track to make Firmus worth more than Telstra — even before having delivered on its promised earnings.

Gerard Minack, of Minack Advisors, said his view was that investors were fundamentally overestimating the returns AI providers will eventually be able to deliver. “While I am becoming more confident that returns on AI investment will disappoint, I have no confidence calling the precise top of the AI market,” Minack said.

Raisah Rasid, a Singapore-based global market strategist at JP Morgan Asset Management, described the recent move as “a valuation reset, rather than the market questioning the efficacy of AI itself.” She added: “This is still a long-term, structural transformation trend. This is very different from the dotcom bubble.”

Despite the wobble, the Nasdaq 100 is still worth nearly three times its level at the start of 2023. On the S&P 500, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla now make up 35% of the index, up from 12% a decade ago. The combined market value of the “magnificent seven” has risen more than 50% over the past two years.

The International Monetary Fund last week listed the bursting of an AI investment bubble at the top of a trio of risks to the global economy, alongside rapidly rising borrowing costs and the threat of a major cyberattack.

Rasid identified two potentially more meaningful threats beyond ordinary market gyrations: an open-source AI model, potentially developed in China, that could undermine the economics underpinning hundreds of billions of dollars of investment — a concern shared by Minack — and the possibility that popular opposition to data-center development or the broader social effects of AI could reach a critical mass.

The market action may also reflect growing investor concern about the borrowing binge by U.S. “hyperscalers” — Amazon, Microsoft, Google and Apple — to fund data-center and AI infrastructure. Minack said the companies spent $425 billion on AI-related capital expenditure in 2025 and are on track to invest $800 billion this year and more than $1.1 trillion next year.

Corporate bonds issued by the hyperscalers now account for nearly 10% of the global investment-grade credit market, up from 0.5% at the end of 2024, according to the IMF.

Sally Auld, NAB’s chief economist, agreed that last week’s pullback in valuations looked more like investors taking a breath rather than the entire trade running out of puff altogether. “When you look back in time, every big new technology, from railroads to the internet, we always overbuild capacity. Why do we think this one will be any different?” she said. “It suggests investors may be taking a more balanced approach. It doesn’t mean the whole thing is a disaster; there’s a reassessment under way.”

A separate and growing concern is the “circularity” of financing arrangements between companies — where, for example, a manufacturer agrees to help pay to build a data center in return for the center’s owner buying its microchips.

“If the demand for AI is not there, then not only does the data center not get built, but also the chips don’t need to be made,” Auld said. “But that’s far more of an issue for the US than in Australia.”

In Australia, data-center investment is forecast to reach $150 billion by 2030 and $260 billion by the mid-2030s, according to economists at Commonwealth Bank of Australia, in an echo of the country’s mining-investment boom of the 2010s. Auld characterized the spending as “meaningful” but not “a major part” of Australia’s economy, and added: “We would not be at the epicentre of any AI bust.”

The imminent U.S. quarterly earnings season will deliver the next verdict on whether AI companies are worth their current valuations, though Minack cautioned that share markets can continue to climb after warning signs in earnings first appear.