A report released on Wednesday cautions that the surge in artificial intelligence investment constitutes a financial bubble that is "primed to pop," with potential fallout for working-class Americans unless policymakers intervene. The analysis, produced by the Open Markets Institute and Americans for Financial Reform Education Fund, argues that major technology companies are relying on increasingly risky, debt-fueled financing to sustain AI infrastructure spending, leaving global stock markets overvalued "to a historic degree."
The report zeroes in on so-called circular financing agreements, where one company funds another's AI project in exchange for the recipient purchasing the investor's products. This arrangement, the authors contend, obscures the true revenue generated by AI and allows firms to inflate their reported earnings while understating expenses.
"The AI industry's extensive ecosystem of circular financing and purchase agreements makes it very hard for outsiders to determine how much bona fide revenue the technology is generating," the report states, "and very easy for companies to artificially inflate the revenues and deflate the expenses they release to the public."
While such deals are not inherently illegal, they can "be used to create a false impression of strong demand and disguise the true state of the involved companies' finances," particularly when circular arrangements drive a substantial portion of revenues. This echoes concerns raised by analysts about misleading market diagrams that fail to capture the interconnectedness of AI financing.
Lessons from 2008
The report draws a direct parallel to the 2008 financial crisis, urging lawmakers not to repeat the mistakes of the Bush and Obama administrations, which bailed out financial institutions. Instead, it insists that failing AI firms should face legal proceedings for orderly liquidation, with no government support to keep them afloat.
"If they face collapse, neither AI-related firms nor their leadership should be shielded from the financial or legal consequences of their mismanagement," the report reads. "Under no circumstances should failing AI-related firms receive government support to remain going concerns."
Rather than rescuing corporations, the report emphasizes that federal assistance should be directed to workers, households, and communities harmed by any crisis. Maya Jenkins, senior policy analyst at Americans for Financial Reform Education Fund and co-author, accused the Trump administration of exacerbating the bubble by "rolling back guardrails that protect investors and financial stability."
"If nothing changes, working people will pay a high price for an AI crash," Jenkins said. "Policymakers should be taking urgent action to reduce the risks. And they should be committing now to not bail out the AI companies or banks and financial firms that caused the problems."
Matthew Scherer, a fellow at Open Markets Institute and co-author, echoed the concern for ordinary Americans. "Workers could lose their jobs, families could see their retirement savings evaporate, and communities could face the fallout from another financial crisis," he warned. "Policymakers need to act now to shore up the financial system and make clear that taxpayers will not be forced to bail out the companies and financiers responsible."
The report arrives amid mounting evidence of strain in the AI sector. Reuters reported that Anthropic, a leading AI lab, posted a net loss of $80 billion in the first half of 2026—more than six times its $13 billion loss a year earlier—yet is still pursuing a $1.5 trillion initial public offering next month. Such figures underscore the disconnect between AI's perceived promise and its financial reality.
For Asia, where AI investment is a key driver of growth in markets like South Korea's semiconductor industry and China's chip sector, the implications are significant. A bursting bubble could ripple through global supply chains and financial systems, affecting economies from Tokyo to Taipei. The report's call for regulatory vigilance and worker protection is a reminder that the AI boom, while transformative, carries risks that demand careful oversight.
