AI Debt Boom Exposes Savers to Market Risk

A Gallup poll found 71 per cent of Americans opposed data centres as borrowing to build artificial intelligence infrastructure helped drive pressure across global markets. In Melbourne, residents delayed a large computer facility, and NextDC’s share price fell 42 per cent the previous week. Companies’ and governments’ financing choices now carry risks for investors and people whose savings sit in superannuation funds.

Who Carries the Debt

The U.S. government’s debt stood at 126 per cent of economic output, the highest level in the post-war era, with no plan to reverse the trend. Annual interest on the $US40 trillion ($56 trillion) debt had topped $US1 trillion, adding to a widening budget deficit. Bond markets responded to the cost of the government’s war in Iran and large tax cuts by pushing up long-term borrowing costs.

Over the past eight weeks, competing pressures from government borrowing and financing the AI boom helped drive a dramatic repricing of borrowing costs. Investors are weighing whether a sovereign debt crisis or the unwinding of a technology boom that has driven stock markets since before the pandemic would be worse. Interest rates would trigger a meltdown, the article said.

The U.S. Federal Reserve was due to meet that night and the following day. An official U.S. rate increase at the meeting looked unlikely, but markets expected an increase in December. Higher rates could add pressure to companies already borrowing heavily to build AI infrastructure.

Major technology companies first funded AI through cash flow. As spending grew and investment expanded into chips and data centres, they turned to debt markets. Alphabet, Amazon, Meta and Microsoft had raised more than $US200 billion between them that year. Nvidia had raised more than $US80 billion and routinely financed data-centre firms such as Australia’s Firmus, making it both supplier and financier.

A Boom Meets Local Resistance

The Firmus float, an attempt to raise $44 billion, had faltered. NextDC’s share price fell 42 per cent after Melbourne residents delayed a large computer facility in the suburbs. Goodman Group recently cancelled a data centre in Sydney’s northern suburbs.

The poll found 53 per cent of Americans also opposed nuclear power plants. Those figures come alongside setbacks for companies betting on rapid infrastructure expansion: CoreWeave, a U.S. neocloud that rents chips and computing power to AI firms, lost 36 per cent of its stock value in the previous month amid concern about its debts. The Nasdaq had its worst fortnight since April as developed nations collectively turned away from AI infrastructure construction.

Delays could slow AI’s rollout to businesses, undermining AI firms’ revenue and destabilising companies that borrowed heavily to invest. The article also asked whether opposition to data centres could stall their rollout, whether China might produce a much cheaper AI version that undercuts Silicon Valley, and whether sales revenue might fail to cover debt interest payments. Wall Street was growing wary.

Regulators Watching the Machinery

Australia’s Australian Securities and Investments Commission (ASIC) was reviewing national financial markets, including the Australian Securities Exchange (ASX), private credit, fixed income, commodities and foreign exchange. It also held round-table talks to improve market operations and remove friction points.

ASIC commissioner Simone Constant said the regulator’s two themes were resilience and transparency. “Resilience gives you strength, transparency gives you trust,” she said. Constant said global markets were more integrated and open for more hours than ever, capital flowed offshore as well as onshore because of the dominance of technology stocks, and there was “high and strategic risk ... and giant pools of savings in Australia.” She added: “We’re seeing movements in spreads and volatility that we haven’t seen for a long time.”

The article compared the situation with the 2008 financial crisis, when a lack of transparency from ratings agencies, auditors and lightly regulated debt-market instruments led to panic. Investors didn’t know who owed what or which banks held worthless debt. Constant said ASIC’s review couldn’t prevent a crash, but could reduce the chance regulators were blindsided. Australian superannuation funds had invested heavily in technology and AI, delivering double-digit returns to members; that same exposure connects savers to the risks under review. “We don’t want to be a regulator that fears the risk of the challenges ahead,” Constant said. “It’s about adapting to it with that trust and with that strength, that resilience and transparency give.”