Mary Pieterse-Bloem on Nieuwsuur: ‘I don’t think we should be talking about an AI bubble just yet’

Rising interest rates put pressure on highly indebted companies

On Wednesday 14 October, shares in several companies that build and operate data centres came under heavy pressure. CoreWeave’s share price fell by more than 16%, while Nebius and Oracle lost 10.6% and 9%, respectively. The declines followed renewed concerns about CoreWeave’s high financing costs. The yield on the company’s bonds rose to more than 15%.

According to Pieterse-Bloem, markets had already been unsettled for some time, but an inflation figure that came in higher than expected contributed to the share price falls. This led investors to factor in the possibility of an interest rate increase by central banks. Companies with high levels of debt and no profits are particularly vulnerable to such developments.

‘If, for example, you have a mortgage and suddenly have to pay 15% interest on it, that is the kind of interest rate this company has to pay when it raises money again,’ Pieterse-Bloem explained.

High levels of investment and growing dependence on capital markets

According to Pieterse-Bloem, uncertainty surrounding AI is partly related to the scale of the investment involved. Developing AI infrastructure requires enormous sums of money. While major technology companies initially financed their investments largely from their substantial profits, they are increasingly turning to capital markets to raise additional funding.

This makes financing costs and the availability of capital increasingly important. When interest rates rise, new investments become more expensive, putting further pressure on companies carrying heavy debt burdens.

CoreWeave is also at the centre of the debate about potential circular financing within the AI sector. Nvidia is both a major shareholder in and a lender to the company, which uses part of this financing to purchase Nvidia’s AI chips.

No direct comparison with the 2008 financial crisis

The risks associated with AI investments also raise the question of whether financial problems at one company could spread to the wider economy. At present, however, Pieterse-Bloem sees no direct comparison with the collapse of Lehman Brothers in 2008. According to her, CoreWeave is closer to the periphery of the AI ecosystem. She distinguishes between companies with high levels of debt and businesses such as Nvidia, Amazon, Google and Microsoft. These major technology companies continue to generate strong profits, hold substantial cash reserves and have relatively less debt. Pieterse-Bloem believes that problems at a major player such as Nvidia could have considerably greater consequences than problems at a company such as CoreWeave.

Is there an AI bubble?

Despite the recent share price falls, Pieterse-Bloem is reluctant to describe developments as an AI bubble. ‘I don’t think so. I think that is a slight exaggeration,’ she says on Nieuwsuur. In her view, investment in AI is real, as is the financing being raised to support it. The growing use of the technology and the strong profits being generated by companies are also real developments.

Investors are therefore watching with interest as companies publish their results over the coming weeks. The results reported by chipmakers ASML and TSMC have already exceeded expectations. The forthcoming figures should show whether other companies can also meet the high expectations placed on them. Pieterse-Bloem expects an exciting period for investors, during which it will become clearer to what extent companies’ earnings performance continues to support optimism about AI.