AI Boom Drives Market Volatility and Corporate Debt

The U.S. stock market is experiencing a generative AI-driven boom, with the Nasdaq and S&P 500 seeing valuations that mirror the late 1990s dot-com bubble. While profitable infrastructure providers like Nvidia Inc. and Micron maintain high gross margins, the broader sector faces sustainability challenges. Leaked documents show OpenAI reported a $21 billion loss against $13 billion in revenue for 2025 and projects infrastructure spending of nearly $280 billion by 2030.

Big Tech companies have shifted capital allocation to fund AI infrastructure, resulting in a $194 billion increase in net debt, a 50% reduction in stock buybacks, and near-zero free cash flow. This surge in leverage coincides with rising financing costs. The Federal Reserve System raised interest rates to a target range of 3.75% to 4.00% to combat inflation, pushing 10-year Treasury yields near 5%.

Market stability is further pressured by the policies of President Donald Trump, including tariffs and a military operation in Iran that partially blocked the Strait of Hormuz. While AI usage and inference demand continue to surge through 2027, AI-linked stocks have seen increased volatility following public debates regarding AI risks.