November Economic Update
Market Summary
As we foreshadowed at the end of last month’s newsletter, risks within the AI sector led to a tech selloff in the month of October as investors took recent news of an AI bubble more seriously. The broad S&P 500 index and small cap Russell 2000 index were not impacted as much as the Nasdaq 100 index. The S&P 500 lost -0.95% and the Russell managed to gain 0.53%, whereas the Nasdaq lost -6.67% with some individual tech companies within the index losing -10% to over -20%. In this newsletter, we will unpack the concerns and risks within the AI sector. (1)
The Concerns Over an AI Bubble
Multiple news agencies and prominent investors have analyzed the circular investing within the AI sector. This is where companies such as Nvidia, Microsoft, Oracle, OpenAI, and others will invest in each other to both secure more debt and promise more AI demand. For example, Nvidia has invested into OpenAI (makers of ChatGPT). OpenAI then uses that money to buy Nvidia’s chips. Oracle buys Nvidia chips, and Nvidia uses those proceeds to invest back in OpenAI, which then cycles that capital back to Oracle for computing services. When you begin to map out the flow of funds between these companies, you end up with a giant loop where the same money is being passed, artificially inflating revenues and earnings as the same money is counted multiple times between multiple companies.
Secondly, concerns over the amount of debt AI companies are taking on are reaching an inflection point. It has been reported that several Wall Street investment firms and some of the largest bank lenders in the country are beginning to refuse funding more debt for AI companies. This is leading AI companies to further invest in each other as their traditional lending sources have dried up. Companies like CoreWeave has seen their corporate bond prices plummet as investors and debt holders begin to question the financial stability and outlook of the business.
Most of the large AI companies are losing money exponentially as they spend trillions of dollars betting on building data centers and other infrastructure. It is projected that OpenAI will still be losing $74 billion in 2028 – two years from now. The question is increasingly being asked: how and when will these companies stop losing money, and is a bet on that outcome worth the multi-year risk? OpenAI’s CEO, Sam Altman, famously said they will continue to build out their AI models until they are smart enough to ask them how to make the company profitable – a truly risky gamble that was met with laughter at a speaking event. (2)
OpenAI has also proposed having the US government directly invest into the company not only to loosen regulatory pressure, but to also serve as a backstop for their debt. In the event of a debt default of the company, taxpayer money would be used to bail out OpenAI – very similar to how Wall Street banks were bailed out during the Great Recession as they were viewed as “too big to fail.” This and other leaks from the company highlight the precarious financial position regarding raising and securing more debt. (3)
Looking Forward…
November has started on a volatile note as the Nasdaq continued to fall. The S&P 500 also began to reflect the AI risks. The risks that preceded these moves were well-known. The question now is, at what point are these risks fully priced into the market? As we move out of the historically volatile periods of September / October and move into a historically favorable part of the calendar year, it will be telling to see how the market continues to digest these AI developments as we set up for 2027.
Monthly Financial Tip:
Keeping a permanent extra $1,000 to $3,000 in your main checking account acts as an automated shock absorber against unexpected timing mismatches—like an auto-pay bill clearing a day before direct deposit hits—eliminating nuisance overdraft fees without needing to transfer money from savings.
Citations:
1. Schwab, Oct 1, 2026
2. The Wall Street Journal Nov 10, 2025
3. Financial Times June 01, 2026
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
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