The fortunes of millions of households in India, from those of software engineers to stock market investors, are increasingly tied to the same distant number: the valuation of seven American technology companies.
The S&P 500 – a stock market index tracking the largest publicly traded companies in the US – has climbed nearly 80% over five years, propelled largely by Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
An AI-driven surge has pushed their stocks to record highs. But the economic fundamentals underneath that surge should worry anyone who depends on the health of the global economy, including India.
‘AI bubble’
Data centres and AI-linked spending now account for a disproportionate share of American growth, helping the world’s largest economy remain resilient despite considerable headwinds.
Goldman Sachs predicts that spending on AI infrastructure, from data centres to chips, will rise from $765 billion this year to $1.6 trillion by 2031. Corporate adoption has surged too, with McKinsey finding that regular generative AI use has doubled since 2023, from about a third of firms to over two-thirds.
But is this boom healthy?
A financial bubble forms when asset prices are detached from what an asset is worth. Estimating that underlying worth is always contested, since it is based on assumptions and models rather than observable facts.
Today’s high spending could well...
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