Since the advent of OpenAI’s ChatGPT in late 2022, the list of possible indicators that the AI boom was about to go bust is long and growing, leaving Wall Street wondering each time if the end is finally near.
For example, every time AI chip giant Nvidia saw its market capitalization cross the $2 trillion, $3 trillion, $4 trillion, or $5 trillion mark, the bears sounded the alarm.
The borrowing spree of AI hyperscalers and their astronomical capital spending plans have raised new red flags. The DeepSeek shock in early 2025 sparked further panic as China’s AI model sparked doubts about the need for all this investment.
Also last year, OpenAI CEO Sam Altman’s admission that an AI bubble exists and Michael Burry’s bearish bets represented more red flags. This year, the war in Iran, the collapse of the South Korean stock market and “circular” financing deals between AI companies have added to fears.
But profits continued to soar, and stocks eventually rebounded to hit one record high after another.
Of course, traders’ persistence in continuing to double down on AI could also be a sign of a bubble. Many on Wall Street also recognize that the good times will end at some point. The only question is how long AI betting can last without leaving money on the table.
Now there’s a new reason to wonder if it’s time to cash out.
Current AI concern centers on whether the billions of dollars spent on AI will be profitable enough, dragging down debt-ridden companies like CoreWeave. Computer company NeoClound has seen its shares fall and credit default swaps rise recently.
For Dan Greenhaus, a strategist at Solus Alternative Asset Management, CoreWeave is not a canary in the coal mine that signals AI’s impending collapse.
“How many canaries have we killed in the coal mine over the last three years, while everyone latched onto every new sign of weakness, so to speak, as proof that the bull market was about to end, only to see the entire market, both technological and otherwise, reach new highs?” he told CNBC on Friday. “So I don’t know if I would read more about what’s going on now than I would have or any of the other headlines.”
To be sure, borrowing costs have soared as the war in Iran and oil prices have sent bond yields to their highest levels in more than 20 years. The Federal Reserve is also raising rates again to curb stubborn inflation.
This imposes increased scrutiny on the riskiest areas of the AI boom, which is increasingly dependent on debt issuance through the bond market.
But Greenhaus pointed out that CoreWeave’s unsecured debt has been particularly targeted, calling it “the riskiest of AI development strategies.” At the same time, profits from AI chip suppliers like Taiwan Semiconductor indicate that the broader demand environment remains robust.
At the same time, he also doesn’t expect companies in the AI ecosystem to be able to continue funding indefinitely as rates rise.
“I don’t know if this is the breaking point or if it’s another 25 or 50 basis points higher,” Greenhaus said. “But as rates rise, the more speculative tails of construction are going to be challenged so to speak, and right now, that’s CoreWeave.”
For his part, CoreWeave CEO Mike Intrator said markets can “misunderstand and act irrationally” and told employees in a memo that the company’s backlog is more than sufficient to meet its debt obligations.
Nvidia CEO Jensen Huang also backed CoreWeave, which counts the chipmaker as a shareholder, saying it didn’t need a financial safety net.
“CoreWeave’s strength is improving every day,” he told Bloomberg. “I’m optimistic. Their cost of capital is actually coming down.”
Others on Wall Street also see strong demand for AI and believe the recent selloff presents a new buying opportunity.
Yet even eye-popping revenue estimates might not be enough to support sky-high spending. On Wednesday, Gartner warned that AI data center owners must generate $8.5 trillion in cumulative revenue through 2030 to cover capital expenditures, financing costs and a 12% return.
But total enterprise and consumer AI revenues for data centers will only amount to $3.6 trillion at most, putting more than $4 trillion in asset values at risk of depreciation through 2032.
Bank of America analysts said in a note Friday that the AI investment boom follows a classic capital cycle, which usually ends in disappointment “even if the underlying technology has often lived up to expectations.”
Typically, initial profit margins tend to be high, leading to overinvestment and excess capacity while attracting more competition.
In the case of AI, competition has already intensified, especially from Chinese open-weight models. Additionally, corporate spending on AI has started to decline as increased token volumes fail to offset declining token prices.
“This disappointment in monetization in the face of intense competition is precisely the failure mode observed in past financial cycles,” BofA added.
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