Artificial intelligence is attracting unprecedented levels of investment, driving the valuations of leading AI firms sharply higher. Companies are racing to build data centres, hire scarce talent and secure advanced chips such as GPUs, pushing costs and competition to new levels.
While it is unclear whether this surge reflects a speculative bubble, the speed of valuation growth, heavy losses at some AI firms and growing investor fear of missing out are raising concerns, according to Moody’s.
Moody’s does not conclude that an AI bubble exists, instead, it examines what could happen if valuations of AI-related companies were to fall sharply, by about 40 percent, in the near term.
Importantly, even in such a scenario, demand for AI services and computing power is expected to continue growing.
Companies Planning an AI Investment
For companies planning to invest in AI, the key takeaway is that market valuations may fluctuate, but the underlying use of AI is likely to expand. However, a sharp correction would reshape who can invest, how fast, and at what cost.
If AI valuations were to fall sharply, investment funding would become harder to access. Independent and privately funded AI labs would be the most affected, as they rely heavily on continuous capital injections to develop increasingly powerful and expensive models.
In a tighter funding environment, these firms would likely slow down expansion, delay new projects or scale back ambitions.
For companies that depend on partnerships with such labs, this could mean slower innovation cycles or changes in pricing and service availability.
Large technology companies with diversified revenue streams and strong balance sheets would be far more resilient.
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Firms such as Microsoft and Alphabet have the financial strength to continue investing in AI even during a downturn.
“In fact, a market correction could give them opportunities to acquire promising AI startups at lower valuations.”
This implies that working with established Big Tech platforms may offer greater stability, especially during periods of market volatility.
Data Centres and Chip Suppliers Would Feel Mixed Effects
Moody’s says a correction in AI valuations could reduce the value of some data centre infrastructure, particularly if new projects are delayed.
However, existing long-term contracts with major technology companies, limited available capacity and strong long-term demand for computing power would help cushion the impact.
Semiconductor companies could face pressure if overcapacity emerges, but leading chipmakers are better positioned than in previous cycles due to stronger balance sheets and sustained demand for AI-related hardware.
For companies investing in AI infrastructure, this implies that long-term demand remains intact, but short-term pricing and expansion plans may become more cautious.
A sharp decline in AI-related equities would not be confined to the technology sector. Falling valuations would reduce household wealth, potentially weakening consumer spending. This would affect companies in non-essential sectors and could tighten credit conditions more broadly.
Venture capital funds heavily exposed to AI would be hit hard, while private credit, an increasingly important source of AI financing, would also come under pressure.
The effects could extend to pension funds, insurers and banks, particularly regional lenders with exposure to technology-linked real estate.
