There appears to be an intriguing financial crisis brewing in the artificial intelligence (AI) sector, one that could have far-reaching implications. A handful of major companies are employing special purpose vehicles (SPVs)—essentially subsidiary entities designed to isolate and manage specific financial activities. These SPVs allow the parent companies to keep associated risks off their primary balance sheets, effectively shielding them from scrutiny by investors and regulators. While this structure is a legitimate tool in corporate finance for compartmentalizing ventures, it can obscure the true extent of financial exposure, potentially misleading stakeholders about the underlying stability of these operations.

Compounding this is a pattern of what might be described as circular investing (mutual back-scratching). For instance, NVIDIA, a leading manufacturer of AI-enabling hardware like graphics processing units (GPUs), has poured billions of dollars into emerging AI startups. In turn, these startups often channel a significant portion of those funds right back to NVIDIA to purchase the very chips needed for their computing infrastructure. This creates an illusion of robust revenue growth on NVIDIA's income statement, though much of it stems from these interdependent investments rather than organic market demand. Such practices, while not uncommon in high-growth tech ecosystems, raise questions about the sustainability of the valuations and the potential for artificial inflation.

This dynamic goes beyond a typical market bubble; it echoes elements of a Ponzi scheme, where apparent prosperity relies on continuous influxes of new capital to sustain earlier commitments. The unraveling may already be underway, particularly in the commercial real estate market. The intense hype surrounding AI and tech innovation has fueled aggressive overdevelopment in key hubs like San Francisco, Phoenix, Atlanta, and other cities betting on a tech boom. Lavish high-end office and residential projects, once symbols of boundless optimism, now stand partially vacant. This stems from tech firms halting new hires and initiating widespread layoffs amid economic pressures and a reevaluation of growth strategies—moves that have cooled the demand for commercial space.

The ripple effects have reached even quieter spots like Tucson, where the slowdown in tech-related construction and leasing has led to softer rental markets. For me personally, this turned out to be a silver lining: I managed to secure a month's free rent on my place without needing to put down a security deposit.