AI-Fueled Market Euphoria Faces Test as Tech Spending Turns to Debt

The stock market’s AI-driven rally is showing signs of strain. With megacap tech companies steering market direction, this week’s earnings have brought volatility — and fresh worries that investor optimism may be overextended.

Disappointing results from Meta (-11.33%) and Microsoft (-2.92%) sparked a broad selloff Thursday, while Amazon (-3.23%) and Apple (+0.63%) helped stabilize futures on Friday. The whipsaw action reflects how sensitive investors have become to any weakness in the AI narrative powering today’s exuberance.

Among those flashing warning signals is Michael Burry, the famed “Big Short” investor. Posting on X, Burry wrote:

“Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.”

While often seen as a pessimist, Burry’s trading history shows nuance. Scion Asset Management’s filings have alternated between bullish and defensive stances — from long positions in Alibaba, Baidu, and JD.com, to put options on Nvidia, and later calls on Meta, ASML, and UnitedHealth. His next quarterly filing, due in mid-November, may reveal whether his tone has turned defensive again.

What’s fueling this growing caution is a notable shift in how Big Tech is funding AI investments.

Until recently, the AI spending surge was largely powered by cash flow — a reassuring sign of financial discipline. But Meta’s $30 billion Hyperion data center project in Louisiana marks a turning point. The company used a special purpose vehicle (SPV) to issue most of the debt, keeping it off Meta’s balance sheet and preserving its credit rating.

This kind of off-balance-sheet financing — dubbed “quantum debt,” because it’s both present and hidden — has raised eyebrows. If other tech giants follow suit, it could introduce new layers of financial risk into an already overheated market.

Reports from Bloomberg and the Financial Times indicate Meta may also be exploring a $25 billion bond sale, reinforcing the trend.

As the AI gold rush shifts from cash to credit, investors are asking a crucial question: Is this innovation-fueled rally sustainable — or the early stage of another bubble?