A flurry of investment in artificial intelligence is drawing comparisons to the dot-com boom, as tech giants embark on a massive spending spree. The $10 billion debt deal announced by Australian AI hopeful Firmus Technologies highlights the global scale and high cost of entry into the AI race. Firmus Technologies aims to develop advanced AI solutions for various industries, and this deal marks a significant step in its growth strategy. While the company’s specific activities are not detailed, it aims to be a major player in the competitive artificial intelligence landscape.
Alphabet, Google’s parent company, recently initiated a $US15 billion debt deal, considering bond issuances in British pounds and even exploring the possibility of a 100-year bond. JPMorgan analysts estimate that the tech sector will need to issue $US337 billion in high-grade bonds this year to fund AI investments. This mirrors the late 1990s, when companies like Motorola issued 100-year bonds before the dot-com bust. Michael Burry, known from ‘The Big Short’, noted Motorola’s subsequent decline after being overtaken by competitors.
During the recent Super Bowl, 16 tech firms spent between $US8 million and $US10 million each on advertisements, totalling up to $US160 million. This level of advertising expenditure is reminiscent of the 2000 Super Bowl, dubbed the ‘Dot-Com Bowl’, and the 2022 crypto ad blitz before FTX’s collapse. While the demand for bonds remains strong, questions linger about how much credit investors are willing to absorb and at what price. According to Jake Pollack, head of North America credit trading and global credit financing at JPMorgan, there will be some market indigestion.
Despite the concerns, JPMorgan believes the healthy US economy will mitigate the risks. Stephen Dulake, co-head of fundamental research at JPMorgan, said the real issue is the slope of the monetisation curve. Nevertheless, the dot-com parallels serve as a reminder that a loss of investor confidence could have severe consequences for both investors and the broader economy.
