An AI bust could come from places investors aren't watching, an economist says

Concerns about an AI bubble are growing as investors question whether massive capex spending will pay off.

TS Lombard warns that debt, a potential chip glut, and political backlash could threaten the AI trade.

Much of AI's revenue growth still comes from spending within the industry itself, TS Lombard economist says.

As concerns about an AI bubble mount, an economist is warning that investors may be overlooking other vulnerabilities in the boom.

"The trigger doesn't have to be endogenous to the boom. It could be external," wrote Dario Perkins, managing director of global macro at Global Data.TS Lombard, in a note on Monday.

Perkins argues that much of the industry's revenue growth still comes from spending within the AI ecosystem rather than businesses and consumers paying for AI services.

"The question is whether those revenues are coming from businesses and end-users outside the ecosystem — presumably to pay for productivity-enhancing tools — or from simple capex recycling," he wrote.

The warning comes after a recent chip-stocks selloff that has intensified concerns about whether massive AI infrastructure spending will pay off.

Last week, the Philadelphia Semiconductor Index fell more than 11% before clawing back 2% on Monday.

One potential fault line is debt outside Big Tech.

While hyperscalers such as Microsoft, Amazon, and Google have strong balance sheets, smaller cloud providers, model developers, and infrastructure suppliers have been taking on increasing leverage.

Perkins estimates that debt across parts of the AI ecosystem could reach $2 trillion by the end of 2027.

He doesn't see AI-related debt as a systemic financial risk, but warned that earnings disappointments and canceled orders could ripple across the ecosystem. Even cash-rich hyperscalers could decide not to renew data center leases, leaving weaker companies exposed.

Another risk is an unexpected chip glut, as companies reportedly over-order semiconductors to guard against shortages, potentially creating excess supply if demand slows.

"Let's not forget we are talking about tech hardware and chips, notoriously cyclical, and prone to bullwhip effects," Perkins wrote.

Higher interest rates could further undermine the economics of AI investment, particularly for companies reliant on borrowing to finance their expansion.

But Perkins sees another potential trigger that has little to do with corporate earnings: political backlash.

"AI boosters on social media live in a bubble," Perkins wrote.

"They don't realize that ordinary people don't like AI. They don't find it useful, they REALLY don't want to live near datacenters, and they are worried about their jobs. And they vote," he added.

Perkins suggested that a single high-profile incident could rapidly turn that unease into broader opposition.

"One high-profile accident turns AI toxic," he wrote.

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