The hosts had just described circular financing deals between AI companies. Jenkins, co-author of a report on the AI bubble, describes why those tangled relationships could let trouble in one corner of tech spread.
…report that Maya co-authored argues that an AI bubble exists and it will pop at some point. It points to heavy concentration of the stock market in tech stocks is one of the red flags. The circular financing deals between many of these companies is another one. We've been covering this phenomenon.
Oh, yeah. We're always adding string to our red yarn board. Am I right? Oracle, anyone? Core weave?
The same few companies that are each other's suppliers, each other's customers, each other's investors, each other's guarantors. And the risk-taking, again, could turn stress in one, even subsection of the tech sector into a contagious spread of risk.
And Maya says if there's a downturn in these stocks, that will have dangerous ripple effects, even for people who don't have any money invested in the market.
More and more of the spending in this economy sits on the wealthy, and much of the wealthy's wealth comes from the stock market. And so those folks are spending on travel, on dining out, on renovations, on big purchases. When and if they pull back as a result of a correction, that could really have…
The scenario that Maya outlines goes something like this. The stock market sinks. People with their wealth tied up in stocks then spend less on vacations, eating out, and services. That threatens the jobs of hotel housekeepers and restaurant servers and hairstylists.