On Bloomberg TV Bulgaria’s “V Razvitie” programme I argued that if artificial intelligence is a bubble, it is the most pitiful one. The US earnings season has shown once again that the technology sector keeps beating revenue estimates, and that even passive investors cannot avoid it. At the same time, capital expenditure at the largest companies continues to grow on a colossal scale, and the market is starting to look less at the investment itself than at whether free cash flow can carry it.
Investors are punishing the long maturity of capital spending
When returns are slow to arrive, companies replace free cash flow with fresh issues of debt and equity. Investors, for their part, have begun to punish the long maturity of this spending, because they no longer accept without question the idea that every dollar invested will come back with interest years from now. It is precisely this tension between spending and free cash flow that is turning market sentiment against the technology giants for the coming months. Part of the decline in the hyperscalers came from the fact that they started funding their capital programmes with debt, which raises the risk without any clarity on when revenue will cover the cost.
The AI race goes on, and nobody is dropping out
Yet the race continues, and nobody is dropping out. Companies are proving this with their actions, not with statements. If there is a bubble in this environment at all, it is the most pitiful kind - one in which money goes into real data centres, chips and energy rather than empty promises of clicks. The Anthropic IPO will be interesting precisely because there are so many unknowns around the company’s plans, and because the market will have to decide how much to pay for future growth that is not yet backed by sustainable free cash flow.
Too many balls in the air, and the old rules
Today’s investor is juggling too many balls at once. Central bank policy, the oil price, bond yields and geopolitical noise are all layered on top of the question of whether capital spending will pay off. The old rules - diversification and a normal investment horizon - once again look more resilient than attempts to catch every move in the race.
The US midterm elections could bring more balanced policy if the Democrats take one of the chambers of Congress, but the Fed has shown its independence under its new chair as well. The elections are unlikely to change its course. Solid growth and a strong labour market leave the Fed free to concentrate on inflation by raising rates. Talk of insider trading by the Trump family, however, remains terrible for the market, because it undermines confidence in the very rules by which the market operates.
China’s economy is trying to pivot from exports to domestic consumption, and that cannot happen without turbulence, especially with the property sector’s problems still unresolved. The US market is in a different position, because a large share of the world’s money continues to flow there. Nor do I expect any upheaval at the ECB when Christine Lagarde steps down. Over the years we have seen several smooth transitions, and they have brought nuances, not a change of policy.
Ultimately, the question is not whether artificial intelligence will change the economy - it already is. The question is whether the capital spending that fuels it will be carried by free cash flow, or whether the market will keep punishing its long maturity until it sees a return. If there is a bubble, it is pitiful precisely because it rests on real assets and on companies that are not giving up. A pitiful bubble, however, is still a bubble if the money runs ahead of revenue for too long.
This article is based on his appearance on Bloomberg TV Bulgaria’s “V Razvitie” programme on 30 October 2026.
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