Why the Al Investment Cycle, which Works Today, May Turn into a Trap
Is there a bubble in the shares of artificial-intelligence companies? In the short run, maybe not, but investors need to focus on the long run as trillions of dollars are at risk and a possible burst of the bubble may hinder economic growth for years to come. For the disciplined investor, current liquidity is no replacement for a sizable margin of safety.

Special to the Globe and Mail. Originally published August 27, 2026
It is true that AI companies nowadays have proven track records of growth and cash-flow generation, which was not the case in the late 1990s. For example, hyperscalers, such as Alphabet, Amazon, Meta, Microsoft and Oracle, now generate a combined US$692.291-billion in trailing twelve-month operating cash flow, reflecting a 29.69-per-cent annual surge and a June over March quarterly growth of 5.18 per cent.
But the other argument that proponents of a bull AI-driven market bring forth - namely, that these companies have solid balance sheets - is questionable. What we have now is companies that used to be light capex (capital expenditures) are becoming heavy capex, and companies that used to have little or no debt are now heavily indebted. A wave of debt raising by tech companies investing in AI has blanketed the private and public debt markets.
But it also goes beyond this. For example, anchoring the aforementioned financial performance is US$2.3375-trillion in Remaining Performance Obligations, or RPO - which is the value of contracted deferred and unbilled revenue expected to be recognized, a massive backlog that continues to underpin the credit profiles of these market leaders.
Opinion: Why the bursting of the Al bubble would be a much more worrisome event than many people think
It seems that debt and equity markets remain eager to underwrite nearly any expansion project related to AI. The overarching long-term risk is not a sudden lack of solvency, but a fundamental capital degradation fuelled by a relentless infrastructure race that is powered by the thirst to raise capital quickly.
Let us explain...
George Athanassakos is a professor of finance and holds the Ben Graham Chair in Value Investing at the Ivey Business School at Western University. His latest book is Value Investing: From Theory to Practice. Andi Kerenxhi is the founder and CEO of Ubineer, an AI insights company for professional investors.


