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Since no one can say definitively whether this is a bubble, I’d advise that no one should go all-in without acknowledging that they face the risk of ruin if things go badly. But by the same token, no one should stayall-out and risk missing out on one of the great technological steps forward. A moderate position, applied with selectivity and prudence, seems like the best approach.
-Howard Marks, Founder and Co-Chairman of Oaktree Capital Management, on the topic of AI investing1
It's now been three years since ChatGPT version 3.5 debuted and propelled Artificial Intelligence (AI) into one of the leading financial news topics.2 The subsequent AI investment boom has been fast and furious, and it has become a chief engine of economic growth and rising stock market valuations. Notably, the US stock market has become more highly concentrated, with the largest AI-related Technology sector stocks dominating indices – for example, AI-related stocks have accounted for 75% of S&P 500 returns since ChatGPT 3.5’s launch in 2022.3 Additionally, data center and AI-related corporate spending is responsible for more than 1% of total GDP growth, or roughly 1/3rdof total GDP growth for the year.4 Which means the financial health of the Technology sector is critical to the net worth of many American households. That said, a closer look at some of the behavioral market trends, as well as the financial structure supporting the AI boom, reveals signs of fragility and risk.
At Sapient, we believe AI could prove to be a transformational technology over time in ways we can hardly even imagine or predict right now, similar to past break through technologies like the internet, airplanes, radio, electricity, and railroads. We also recognize it’s possible to experience failed investment cycles tied to these transformational technologies. One only has to look back 25 years to the Dot-Com Bubble and market crash to see a vivid example of this very outcome. Early investors in radio, airplanes, and railroads also faced similarly poor outcomes.1
In recent months, signs of stress across the AI-industry have emerged that call into question the sustainability of its current rally:
1. AI industry investment spending currently outpaces AI-related revenues by a wide margin, so that as a whole the AI industry is nowhere near profitability. Sam Altman is the CEO of OpenAI, which is the company that created ChatGPT, and just last month he said their company is on track to generate $20 billion of annualized revenue this year and as much as $100 billion by 2027.5 However, investors are still asking him to explain how that level of revenues will pay for their $1.4 trillion in outstanding infrastructure spending commitments in recent months. Imagine someone with income of $20k per year signing up for a $1.4 million mortgage on a 15-year term?
2. The cornerstone asset of the AI boom is the Graphical Processing Unit (GPU), sold primarily by a company called NVIDIA. However, the value of the GPU chips is poised to drop dramatically, as NVIDIA plans to release new and improved versions each year. As a result, the companies who intend to stay market-leaders in AI –often referred to as “hyperscalers” in the financial news – will need to regularly replace their GPUs just to keep up, which will cost tens or even hundreds of billions of dollars each year. It also means any debt they issue collateralized by their GPUs may face solvency risk, as the value of those GPUs could fall much faster than the loan balance. Currently, there is roughly $1.2 trillion of AI and data-center debt outstanding which is the largest segment of the investment grade bond market.6
3. There are signs of circular deal-making and interlocking liabilities across the AI industry. Many of the key players are making back-and-forth cross-company deals to help finance expansion and grow revenues.7 Many are also issuing debt to help finance and fund these deals, and in some cases that debt is now being placed inside a Special Purpose Vehicle (SPV) to keep it off the balance sheet of the parent company. This echoes some of the financial structuring uncovered during the Enron Scandal in the early 2000’s.8
For Sapient clients, the most meaningful risk we’re watching is the possibility of a sharp market correction tied to today’s enthusiasm around AI, and the broader wealth effects such a decline could have for households. While it’s certainly possible that AI-related investment continues to defy gravity for longer than expected, we do not view that as the most likely path. As we’ve shared before, we design to the probable with a keen eye for the possible when it comes to portfolio building. With that in mind, Sapient constructs client portfolios with measured exposure to AI-related companies, scaled appropriately to each client’s risk tolerance.9 At the same time, many of the investment managers we partner with are focused less on pure-play AI companies as a theme, and more on businesses that are thoughtfully integrating AI into their operations to improve productivity, efficiency, and long-term competitiveness.
Our entire team at Sapient is grateful for the opportunity to serve you.
Sources:
1. Oaktree Capital Management, “Is It a Bubble?” Dec 9, 2025: https://www.oaktreecapital.com/insights/memo/is-it-a-bubble
2. NY Times, “How ChatGPT Kicked Off an A.I. Arms Race”, Feb 3, 2023: https://www.nytimes.com/2023/02/03/technology/chatgpt-openai-artificial-intelligence.html
3. Substack: Derek Thompson, “AI Could be the Railroad of the 21st Century. Brace Yourself.” Nov 4, 2025: https://www.derekthompson.org/p/artificial-intelligence-could-be
4. Barclays Q1 2026 Global Outlook, Nov 20, 2025: https://www.ib.barclays/research/global-outlook/q1-2026-as-goes-ai.html
5. CNBC, “Sam Altman says OpenAI will top $20 billion in annualized revenue this year, hundreds of billions by 2030”, Nov 6,2025: https://www.cnbc.com/2025/11/06/sam-altman-says-openai-will-top-20-billion-annual-revenue-this-year.html
6. Center for Public Enterprise, “Bubble or Nothing”, Nov 12, 2025: https://publicenterprise.org/report/bubble-or-nothing/
7. Bloomberg, “OpenAI, Nvidia Fuel $1 Trillion AI Market With Web of Circular Deals,” Oct 7, 2025: https://www.bloomberg.com/news/features/2025-10-07/openai-s-nvidia-amd-deals-boost-1-trillion-ai-boom-with-circular-deals?cmpid=100825_marketsdaily&utm_medium=email&utm_source=newsletter&utm_term=251008&utm_campaign=marketsdaily&sref=NWdT70GV
8. The Atlantic, “Something Ominous is Happening in the AI Economy”, Dec 10, 2025: https://www.theatlantic.com/economy/2025/12/nvidia-ai-financing-deals/685197/
9. Morningstar Direct, Dec 15, 2025
Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance and yields are not indicative of future results. Investors cannot invest directly in an index.
