Hey AI, fix this

What a world. The S&P has gained 9% this year and 20% in the last twelve months. Meanwhile there’s been the worst conflict since WW2 raging in Europe. The US has attacked seven countries. Trump started a war with Iran he is now losing. Israel seems out of control. Intense heat is killing tens of thousands, and it’s only June. And the polarized American legislature passed a big bipartisan bill to lower real estate costs but the president won’t sign it. “It’s just a yawn,” he said yesterday.

Inflation is back up. Looks like US interest rates will rise this year (then ours). The North American trade deal is probably dead in the water, at least for now. And that spiffy new $6.4 billion bridge over the Detroit River – which we paid for – is finished, but not open.

(The deal was that we build it, get all the tolls until the construction cost was recouped, then split the cash flow with the US. Now Trump demands half the ownership and half the tolls – even though America paid nothing. This is why Mark Carney is out doing deals with the rest of the world. The Orange Guy is nuts.)

Okay, so you get it. Equity markets seem out of step with economic reality. Public and private debts are shooting higher. Wealth inequality is obscene. Most families are struggling financially. And people with B&D portfolios have been handed double-digit returns for a while now, merely for being smart enough to stop watching BNN and be fully informed with one pathetic blog written by a dog-lover who apparently can’t fight.

Sad.

Well, here’s the news: it’s going to continue. But don’t turn into a stock-flipping cowboy or get too greedy for big tech gains because in a year or two you might regret lacking balance. Safer stuff.

The reason is AI. It’s out of control. More precisely, spending on artificial intelligence, data centres and super-chips now poses an acute risk to the entire global economy.

That’s the conclusion of the BIS – Bank of International Settlements – which is kinda the central bank to all the global CBs. It sees storm clouds. And it warns history is about to repeat, because humans are really, really bad at dealing with new and groundbreaking technology.

It happened with canals in the 1830s, railroads in the 1840s, electricity in the 1920s and the Internet in the dot-com years around Y2K. In each instance investors were smitten. Irrationally exuberant. Obsessed. Over-investment poured in, speculation drove valuations ridiculously past reason, and the whole shebang was followed by retrenchment and recession. Too much capital had chased technology, beyond the ability of the new businesses to generate profits. Mr. Market turned on the greater fools and they were spanked.

So, can it happen again?

Of course. And society has never seen this level of investment before because, as everyone knows, this new technology will change the entire planet. Maybe.

Here’s the caution: first, AI spending is off the charts. US companies alone will commit between $800 billion and a trillion this year to data centre construction. Globally it’s expected that $8 trillion will be shovelled into AI infrastructure over the next six years.

Where’s that money coming from?

Debt. Oodles of it. Through bank financing, private placements and bond issuance. There’s also a dangerous level of circular financing happening, where one big tech company dumps wads of cash and stock into another. Microsoft is putting $5 billion into AI firm Anthropic, for example, while Nvidia throws in $10 billion. Amazon has done a $25 billion deal with Anthropic through a cloud computing partnership while Google now has a 14% stake through its TPU infrastructure.

And then, presto, Anthropic goes public selling equity to all those voracious retail investors hot to be part of the AI revolution. The company is expected to hit a market cap of $1 trillion based on that IPO, while the prediction market is pricing in a 53% chance that greedy, desperate, gambling investors will actually push the company’s valuation to $1.8 trillion on the first day of trading.

Of course, look at SpaceX IPO riding on Elon Musk’s coattails, Glam rockets, big debts, one viable division, no overall profits and yet investors pushed the stock from $135 to $225 – briefly approaching a $3 trillion valuation. (The stock is now at $168.)

The fear BIS holds is that a collapse in AI investing – as the market corrects and legions of investors scramble for the exits – could be worse than a banking crash. Sharper, faster and beyond the scope of government to fix. After all, tech companies now account for between 47% and 50% of the entire S&P 500 index.

There’s more to know. You should read the report.

Mostly you need to be careful, diversified and balanced. Holding Big Tech stocks directly is a risk. Being overweight in equities is also unwise. Eschewing safe stuff, like bonds, REITs, preferreds or cash equivalents, is rash.

If human nature had changed, you’d be okay going all in with Musk and the AI crusaders. Excitement.

But it hasn’t.

About the picture: “These two little girls were found abandoned in rural Montenegro at about six weeks of age,” writes Nat. “We cared for them during our stay there, and after we returned to Canada, our neighbours continued looking after them while they wait for their forever homes. Thought they might qualify as international blog dogs. I am a loyal reader and dog lover.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2026/06/30/hey-ai-fix-this/