Dear WIMM reader,
today I'm commenting on what will happen if we get an AI bubble.
Onto the update:
If we eventually see an AI bubble burst, I don't think it will be because we run out of electricity, GPUs, memory, or gas turbines.
The real constraint is much simpler. Money.
AI infrastructure is ultimately financed through three sources: cash flow, debt, and equity. If companies can no longer raise capital or generate enough cash to fund the next wave of investment, the build-out slows down.
So far, hyperscalers and AI infrastructure companies have raised close to $1 trillion, but as of 31 August 2026, they have generated less than $200 billion in incremental returns from those investments.
…and:
This is exactly the risk highlighted by Apollo, and I agree with their conclusion.
If AI succeeds and tech companies generate trillions in revenue, AI will be massively deflationary and push rates lower.
If AI does not work out, the bubble bursts and the Nasdaq is down 50% as investors rotate out of equities into Treasuries and long rates fall dramatically.
Over the next six months, the market will make up its mind about which AI scenario is playing out.
The bottom line is that financial markets are driven by narratives. The narrative in rates today is all about inflation and fiscal problems. But the narrative going into 2027 is going to be all about either the success or failure of AI. And in both scenarios, long rates are going to be lower.
The question is whether the financing can continue long enough for the returns to catch up with the investment. We’ll find out in 2027…
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