MCH market information
On the topic of AI, I’ve lost count of the number of times this year it’s been said that AI is in a bubble, but despite some sharp sell-offs, the market has so far managed to maintain its resilience.
It’s true that the amount of money being spent on AI has been staggering with there being no question as to whether investors will see a return on investment, especially with all the headlines surrounding the deals announced by OpenAI, which has seen companies like Nvidia, Oracle, AMD, Broadcom, Amazon, and Coreweave sign deals worth a combined total of $1.4 trillion.
This has inevitably raised questions about how all of this is being funded, when all the companies involved seem to be playing the game of passing the package when it comes to investing cash in what looks like a high-tech version of a Ponzi scheme.
These deals also raise all sorts of questions about how this money will generate a return on investment over the long term, and that’s before we look at the considerations of the energy requirements needed when it comes to sustaining these structures when the infrastructure is finally operational.
However, it seems we’re starting to see some evidence that this ever-increasing spending is raising some doubts in some investors about who the winners and losers are in all this spending.
This year alone, we’ve secured large-scale capital commitments from companies like Microsoft, Meta, Amazon, and Alphabet, to the tune of $80 billion, $71 billion, $100 billion, and $92 billion, respectively, as they look to build out their own AI offerings like CoPilot, Meta AI, Alexa, and Gemini, respectively, in order to compete with OpenAI’s ChatGPT.
It was especially noteworthy that the recent announcement from Meta that they will be reducing their investments in the Metaverse and AI by 30%, could be an early acknowledgment that the appetite to spend on AI may be nearing its peak, although in Meta’s case, their Reality Labs has already lost $73 billion over the past few years.
Could this be a welcome shift that raises the question that companies are now starting to think about how and when all this spending will start seeing a return on investment.
In the first half of this year, advertising spending began to take the form of a masculinity contest, but as we head into 2026, that narrative appears to be changing.
With questions now being asked about return on investment, along with a focus on margins, we may begin to get a more realistic picture of who the winners and losers are likely to be, with losers likely to be severely punished.
We’ve already felt somewhat this year that signing big AI deals doesn’t guarantee share price outperformance with the likes of Coreweave shares that went public earlier this year at $40 a share, soared to over $180 a share over the summer, and are now back at around $60.
Oracle shares also saw a big sell-off due to doubts about its artificial intelligence that were sparked by doubts about how to finance its infrastructure plans, as well as a sharp rise in its debt pile. Those concerns were amplified after a major investor, Blue All Capital, refused to back a $10 billion deal for a Michigan-based facility.
This reticence appears to be due to concerns about the debt terms of the deal, as Oracle is looking to build a $300 billion site as part of its agreement with OpenAI to provide the company with 4.5 gigawatts of computing capacity over the next five years.
This concern over debt and lease terms contrasts with the likes of Amazon and Microsoft who have a much greater ability to finance their capital expenditures from their revenue streams, and are therefore able to obtain better terms, with Oracle choosing to finance its construction plans by tapping into debt markets.
As we head into 2026, we expect more focus on how companies are financing these construction plans, in the context of their revenue and cash flow levels, as well as the levels of debt being raised, and when to expect some sort of return on the amounts of capital deployed.
