Articles by Stephen Bartholomeusz

Technology

The rising threat to the global financial system

Until now, questioning of the boom in investment in artificial intelligence has largely been confined to whether it constitutes a stockmarket bubble. Increasingly, the conversation will shift to whether that boom represents a threat to financial system stability. The first phase of the sector’s development has been largely, albeit not entirely, equity funded, with the mega techs – the so–called “hyperscalers” like Google, Microsoft, Meta Platforms and Amazon – funding their massive investments in chips and data centres from their massive cash flows. Between them, those companies will spend $US375 billion ($577 billion) on AI infrastructure and chips this year and closer to $US450 billion next year. Given their cashflows, balance sheets and pristine credit ratings – between them, they had little to no net debt when this splurge in AI spending started – they can afford their investments. There are others, like OpenAI and other AI start–ups, that are making massive commitments – in OpenAI’s case about $US1.4 trillion – without the funding for them in place, relying on access to the equity markets and, to some degree, on circular finance and financial engineering – securing funding from chipmakers, for instance, in return for agreeing to buy the equivalent value of chips.