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🇰🇷 South Korea /Economy & Trade

Is the ‘gray rhino’ of an AI bubble collapse charging toward the economy?

From Hankyoreh · () Korean

Translated from Korean and summarized by DistantNews. Read the original for the full story.

At a glance

Analysis Named sources Ongoing story
  • The article says US equity valuations linked to artificial intelligence have entered bubble territory, citing high CAPE and Buffett indicator readings.
  • Major technology companies are sharply increasing capital spending while their free cash flow grows more slowly, increasing reliance on corporate bonds, special-purpose vehicles and leases.
  • Analysts disagree over whether the buildup will cause a market correction or a wider financial crisis, with the outcome tied to how quickly companies convert investment into profits.

The warning signs around artificial-intelligence investment are becoming harder to ignore, according to the Hankyoreh. The newspaper uses the image of a “gray rhino,” a danger that grows visibly while people fail to respond, to describe the possibility of an AI bubble collapse.

More profound than fire or electricity.

— Sundar PichaiThe Alphabet chief executive’s description illustrates the exceptional expectations surrounding artificial intelligence.

The article points to US stock-market valuations as the most immediate risk. Former New York Federal Reserve President Bill Dudley said US equities had entered bubble territory. The cyclically adjusted price-to-earnings ratio, or CAPE, stood at 41, close to its 1999 dot-com peak of 44. The Buffett indicator, which compares total market capitalisation with GDP, had reached about 240%.

Other warnings came from Yale professor Robert Shiller, who said the CAPE ratio was in its second-highest period in 145 years, and Bridgewater founder Ray Dalio, who described the market as being in the early stage of a bubble. The Bank of England has also warned that the opacity surrounding AI companies’ borrowing could worsen a crisis. The Bank for International Settlements compared the current investment cycle with earlier technology-driven booms in railways, electrification and the dot-com sector.

You have to get up and dance as long as the music is playing.

— Chuck PrinceThe former Citigroup chief executive used the phrase before the 2008 financial crisis to describe pressure to keep investing while competitors remained active.

The five major technology companies cited in the article planned $796 billion in capital spending for 2026 as of August, up from $485 billion at the start of the year. Their cash flow grew about 23% annually, while capital spending rose 70%. AI-related companies had issued $288 billion in investment-grade bonds by August, more than twice the previous year’s total.

The US stock market has entered bubble territory.

— Bill DudleyThe former New York Federal Reserve president cited high valuation indicators as evidence of excessive market pricing.

The article highlights debt raised through special-purpose vehicles, leases and guarantees, including arrangements linked to Oracle and Meta. It also describes unused data-centre lease commitments totaling $1.09 trillion across the five companies, and growing circular financing involving Nvidia. Banks’ direct loans to AI companies remain limited, but lending by banks, large life insurers and pension funds to private-equity data-centre projects has reportedly surpassed $1 trillion. The central question, the article concludes, is whether Big Tech can turn its rising investment into earnings before its cash reserves are depleted.

The Shiller ratio is in the second-highest range in its 145-year history.

— Robert ShillerThe Yale professor provided another warning about elevated US equity valuations.
About this summary

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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