AI-Driven Market Crash Looms: 5 Big Risks to Watch
A stock market crash is often unpredictable and can be caused by a single point of failure. In this case, it's artificial intelligence (AI), which is both the engine and weakest joint of the market.
The five big US hyperscalers are set to spend $750bn on capital spending this year, accounting for 38% of their combined revenue. However, they've increased their reliance on debt, with incremental debt rising from 9% in FY2024 to 32% by mid-2026. They're also issuing more equity.
The concentration of customers is another risk factor. OpenAI missed its revenue target in April, dragging Nvidia and Oracle down with it, and its own forecasts suggest a loss of around $14bn this year. If the hyperscalers cut back on spending or their biggest tenant struggles, the impact could be significant.
To mitigate these risks, investors might consider stable companies with minimal AI exposure, such as Verizon. However, Steve Eisman recommends the Franklin US Low Volatility High Dividend ETF, which includes Verizon but also raises concerns about its yield and return on invested capital.