Forget the P/E ratios. Stop talking about the “AI Bubble” as if it were 1999. We’re not in a dot-com crash. We’re in a credit-fueled stampede — and the bomb is already ticking.
For months, the financial press has been obsessed with one question: Is AI a bubble?
Every week, a new analyst from a major investment bank drops a report comparing Nvidia’s chart to Cisco’s in 1999. They point to the “Solow Paradox 2.0,” the lagging productivity gains, and the $250 billion “revenue gap” that hyperscalers need to fill to justify their capital expenditures (Capex).
They’re looking at the wrong numbers.
The real danger to the AI revolution isn’t a high price-to-earnings ratio. It’s not a temporary lack of ROI from enterprise pilots. It’s not even the “China cliff” in AI chip sales.
The real danger is the $1.5 trillion shift from equity to debt financing.
We’re not building the future on venture capital anymore. We’re building it on leverage. And when the credit markets turn, they won’t just deflate a bubble — they’ll trigger a systemic repricing of the entire technology sector.
From Equity to Debt: The Great Transition
In the early days of the current AI boom (late 2022 to mid-2024), most of the growth was funded by equity. Startups like OpenAI, Anthropic, and Mistral raised massive rounds from venture capitalists and corporate partners. Hyperscalers like Microsoft, Alphabet, and Meta used their fortress-like balance sheets and massive free cash flow to fund their data center expansions.
That phase is over.
According to a recent report from Azeem Azhar’s Exponential View and analysis by AInvest, we are seeing a massive acceleration in AI spending. The tech industry committed roughly $400 billion to specialized chips and data centers in 2024. That number is projected to ramp up to a staggering $2 trillion by 2028.
But here’s the kicker: $1.5 trillion of that $2 trillion is expected to be debt-funded.
We’ve moved from “spending our profits” to “borrowing against our future.” And that shift has fundamentally changed the risk profile of the entire industry.
The Rise of Credit Derivatives
If you want to know where the smart money is looking, don’t look at the NASDAQ. Look at the credit derivatives market.
As reported by Bloomberg (Feb 14), there has been a massive surge in credit derivatives tied to Big Tech companies. These derivatives — specifically Credit Default Swaps (CDS) on single-name tech issuers — barely existed a year ago. Today, they are some of the most actively traded contracts in the U.S. market outside of the financial sector.
Why? Because debt investors are terrified.
They’re worried that the biggest tech companies will “keep borrowing until it hurts” in the race to build the most powerful AI infrastructure. They see the Stargate AI data center (a $100 billion project) and other “Gigawatt-scale” projects being built on spec, without the guaranteed long-term tenants that traditional infrastructure projects enjoy.
The market is starting to price in a risk that wasn’t there two years ago: Credit risk for the untouchables.
The “Data Center on Spec” Problem
In the traditional data center world, you built a facility after you had a lease signed by a blue-chip tenant (a “hyperscaler”). The financing was relatively safe because the cash flow was guaranteed.
In the AI era, we’re seeing a “stampede” of low-quality data center projects being built on speculation. Thousands of GPUs are being ordered, billions are being borrowed, and buildings are being erected based on the vibe that demand will be infinite.
But what happens if the 95% failure rate of enterprise AI pilots doesn’t improve? (Yes, that’s the current estimate for pilots that fail to reach production.)
If the demand from mid-sized enterprises doesn’t materialize, those debt-funded “spec” data centers become stranded assets. And because they were built with borrowed money, the owners can’t just wait for the market to catch up. They have interest to pay. They have covenants to maintain.
When the revenue gap meets the debt service requirement, that’s when the bomb explodes.
The “Cannibalization” Narrative
The credit market jitters aren’t just about the supply side. They’re also about the disruption risk to the demand side.
As LPL Research noted (Feb 17), the market narrative has shifted from “bubble fears” to “disruption risk.” Investors are suddenly waking up to the fact that AI agents might not just improve software — they might replace it.
When Anthropic launched its Claude Cowork plugins, it triggered a $285 billion drawdown in software, legal tech, and data-services names. Investors realized that if an AI agent can autonomously handle legal review, financial modeling, and administrative workflows, the subscription revenue for legacy enterprise tools is in grave danger.
This creates a negative feedback loop:
- Revenue Jitters: Legacy software vendors (the potential customers for AI infrastructure) see their valuations tank as investors fear cannibalization.
- Spending Cutbacks: These companies cut their own AI spending to protect margins.
- Infrastructure Glut: The “spec” data centers find fewer tenants.
- Credit Crunch: Lenders see the risk, interest rates rise for tech debt, and the $1.5T debt pile becomes a $1.5T liability.
Why 2026 is the Critical Year
Most analysts point to 2026 as the year of the “brutal, costly wake-up call.”
By then, the massive capex spending of 2024 and 2025 will have resulted in physical infrastructure that needs to be paid for. The interest on that $1.5 trillion in debt will be due. And the enterprise pilots of today will either have turned into “revenue-driving workforces” or will have been abandoned as expensive toys.
If the 95% failure rate hasn’t dropped significantly by 2026, the credit markets will stop the music.
We’re already seeing the warning signs. Alphabet doubled its capex budget to $185 billion for 2026, and the market punished them for it. AMD guided cautiously and saw a 17% collapse. Even OpenAI is reportedly seeking massive new capital injections just to stay in the race.
The industry is in a “Red Queen’s Race” — running faster and faster just to stay in the same place. But you can only run that fast on borrowed money for so long.
The Bottom Line
The AI revolution is real. The productivity gains will come. The singularity (as seen on Moltbook) may even be approaching.
But none of that matters to a credit market that has been over-leveraged on speculative infrastructure.
The “AI Bubble” talk is a distraction. If you’re an investor, a founder, or a digital strategist, you need to stop watching the stock price and start watching the debt-to-revenue ratio of the AI ecosystem.
We’re building a trillion-dollar tower on a billion-dollar foundation of cash flow. And as any structural engineer will tell you: It’s not the height that kills you; it’s the weight.
Digital Strategist Briefing:
- P0 Risk: Tech credit derivatives trading activity.
- P1 Monitor: Enterprise AI pilot-to-production conversion rates.
- P2 Action: Move from “speculative” AI infrastructure to “utility-based” agent deployments.
This analysis is part of our “Macro-Tech” intelligence cycle. For more deep dives, visit our content factory at https://nibaijing.eu.org.