AI spending heads toward $7 trillion as analysts warn of market bubble risks

Massive financial resources directed into artificial intelligence technologies are driving companies into dangerous territory for global markets.

If expected productivity gains fail to materialize despite these immense capital flows, the artificial intelligence sector faces the risk of inflating into a giant bubble.

The Wall Street Journal reported that should such a scenario unfold, a widespread collapse capable of shaking the entire financial system and dragging down the broader market will become inevitable.

Estimates by McKinsey & Company project that global spending on data center construction alone could reach $7 trillion by 2030.

According to the newspaper, if these massive investments fail to deliver adequate productivity gains, the global economy will suffer a severe blow.

Should the sector as a whole turn out to be a bubble, the resulting damage will spread directly across the broader financial system.

While market observers note that a major crash—whether sooner or later—would drag all equity markets down with it, declines in AI-related stocks are currently being offset by gains in other sectors.

However, the first concrete signs of emerging vulnerability appeared in the memory chip market, where a sector-specific bubble formed and burst within just four months.

South Korean market shaken by sharp drop

In June, shares of South Korea’s Samsung and SK Hynix, the world’s two largest memory chip makers, sank by more than 12%.

The sharp sell-off pulled down the country’s broader stock index. South Korea’s benchmark Kospi index dropped 10%, triggering an automatic 20-minute trading halt.

Growing investor anxiety over artificial intelligence triggered the steep decline in the two giant companies, which together account for half of the total market capitalization of the Kospi index.

US equity markets also felt the ripple effects during the same period. The Nasdaq index closed down 2.2%, while the S&P 500 fell 1.4%, marking their worst single-day performances in two weeks.

Nevertheless, The Wall Street Journal pointed out that the disruption has not yet produced catastrophic consequences for the rest of the market.

While the bursting of massive historical bubbles resulted in disaster for national economies, smaller and localized bubbles in recent years have failed to paralyze broader economic growth.

The primary reason for this resilience is that these recent investments were not predominantly funded through leverage and bank credit.

When those localized bubbles burst, investors suffered wealth losses, but the financial system remained intact.

Russell Napier, a global macroeconomic strategist and keeper of the Library of Mistakes, a financial history archive in Edinburgh, evaluated the current market posture:

“The banking system is in superb condition, which means there will always be enough credit available to blow the next bubble.”