AI Bubble: The Calls Are Coming from Inside the House (roddubitsky.substack.com)

Recent reports from Apollo and Ares have raised significant concerns about the sustainability of the AI investment boom, revealing deep flaws in both the financial rationale and legal frameworks underpinning substantial AI capital expenditures. Apollo's Chief Economist, Torsten Slok, highlighted a troubling disconnect between the massive CapEx investments in AI and the virtually non-existent productivity gains for corporate America outside the tech sector. This suggests that many enterprises view AI spending more as a cost burden rather than a catalyst for growth, a stance supported by Ares' analysis of AI-related debt structures, which revealed alarming vulnerabilities and misguided risk assessments. Ares' findings expose the inherent risks associated with off-balance sheet AI funding, likening current practices to those of venture capital, which often prioritizes high-risk, high-reward bets over stable returns. The research uncovers that supposed guarantees backing AI financing may be more illusion than reality, leaving creditors vulnerable if conditions deteriorate. Despite these red flags, Apollo is committing nearly $80 billion to AI deals through 2026, raising questions about the prudence of such investments amidst mounting scrutiny. As companies like ING and Microsoft reassess their AI investments, the implications of these reports could signal a critical turning point for the AI/ML industry, urging stakeholders to reconsider their strategies and the support structures backing their investments.