/Tech1h ago

Aswath Damodaran Warns AI CapEx Boom Risks Debt-Driven Societal Pain

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Rohan Paul@rohanpaul_ai#1257inTech

dot-com bubble vs. a possible AI bubble.

From the famous "Dean of Valuation", Professor Aswath Damodaran, of NYU Stern School of Business,

“And that’s the real big difference between the dot-com boom and bust and the AI boom. We don’t know whether there’ll be a bust. History suggests there will be a bust.

The dot-com boom and bust had no huge capital expenditure in that cycle. In fact, there was very little traditional CapEx, or even R&D, driving it. People started apps. They basically started going on it.

This has been the biggest infrastructure run-up I think I’ve ever seen in business. You can go back and compare it to the automobile business 100 years ago. The amount of money that’s being put into AI CapEx is immense, which means that when the correction comes, the pain will be more intense.

And herein lies the second problem. The dot-com boom and bust was almost entirely equity-funded. You think, so what? Well, when the bust came, those shareholders lost 60%, 70%, 80%, or 90% of their money. You felt sorry for them, but the loss was restricted to the shareholders.

The problem with the AI CapEx boom is that not only is it immense, but a big chunk of it is funded with debt, and the debt is coming from private capital rather than banks. There’s a very real chance that if there’s a correction and companies start having problems, that problem is going to show up as distress and default, and that really doesn’t stay restricted. It spills over into the rest of society.

I’m not saying it’s going to be 2008, but 2008 is an example of what happens when lenders overreach, when they lend money at too low a rate, and the correction comes. The pain spills over.

So that is my concern with this big market illusion: the potential societal cost of having to deal with debt coming due that you’re unable to pay. It’s much more painful than your share price dropping 90% and you feeling the pain."

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From "Excess Returns" YouTube channel, (link in comment)

1:40 PM · Jun 19, 2026 · 7.1K Views

Sentiment

Users in the replies are alarmed by Damodaran's warning on debt-funded AI capex because it risks a broad credit crisis that would hurt far more than shareholders, unlike the equity-driven dot-com bust.

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7 comments with sentiment.

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Rohan Paul@rohanpaul_ai

Also they have the full video here.

Excess Returns@excessreturnpod

“Growth, when it’s accompanied by huge amounts of reinvestment and substandard gross margins, might not just be neutral to value, but actually be value destructive.”

Aswath Damodaran joined Kai Wu on The Intangible Economy to explain why the biggest stories in markets still have to become businesses.

They discuss:

☑️ His detailed valuation of SpaceX and how it compares to the current market valuation

☑️ Why total addressable market can be a trap for investors

☑️ Why AI’s unit economics may matter more than the size of the opportunity

☑️ How growth can destroy value when it requires massive reinvestment

☑️ Why AI is turning parts of big tech from asset-light businesses into infrastructure companies

☑️ Why great companies can still be bad investments at the wrong price

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Rohan Paul@rohanpaul_ai

Morgan Stanley estimates about $2.9 trillion capital expenditure of global data-center construction through 2028.

With funding sources including $1.4T from hyperscaler cash flows, $200B corporate debt, $150B securitized credit, $800B private credit / asset-based finance / JV debt, and $350B other capital.

i.e. AI capex is increasingly credit-funded, so losses could spill beyond shareholders.

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Rohan Paul@rohanpaul_ai

Morgan Stanley estimates about $2.9 trillion capital expenditure of global data-center construction through 2028.

With funding sources including $1.4T from hyperscaler cash flows, $200B corporate debt, $150B securitized credit, $800B private credit / asset-based finance / JV debt, and $350B other capital.

i.e. AI capex is increasingly credit-funded, so losses could spill beyond shareholders.

Rohan Paul@rohanpaul_ai

dot-com bubble vs. a possible AI bubble.

From the famous "Dean of Valuation", Professor Aswath Damodaran, of NYU Stern School of Business,

“And that’s the real big difference between the dot-com boom and bust and the AI boom. We don’t know whether there’ll be a bust. History suggests there will be a bust.

I’m not saying it’s going to be 2008, but 2008 is an example of what happens when lenders overreach, when they lend money at too low a rate, and the correction comes. The pain spills over.

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From "Excess Returns" YouTube channel, (link in comment)

45m1.6K42

Rohan Paul@rohanpaul_ai

https://www.youtube.com/watch?v=vWx3kQuBHzE

Rohan Paul@rohanpaul_ai

dot-com bubble vs. a possible AI bubble.

From the famous "Dean of Valuation", Professor Aswath Damodaran, of NYU Stern School of Business,

“And that’s the real big difference between the dot-com boom and bust and the AI boom. We don’t know whether there’ll be a bust. History suggests there will be a bust.

I’m not saying it’s going to be 2008, but 2008 is an example of what happens when lenders overreach, when they lend money at too low a rate, and the correction comes. The pain spills over.

----

From "Excess Returns" YouTube channel, (link in comment)

1h91112

Rohan Paul@rohanpaul_ai

https://www.morganstanley.com/insights/articles/ai-market-trends-institute-2026

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Inflectiv AI ⧉@inflectivAI

@rohanpaul_ai Debt funded projects carry higher risks if demand falls short of expectations. Strong balance sheets and clear repayment plans reduce the chance of wider problems later.

1h491

ernesto@westernways

@rohanpaul_ai Partial nationalization of the AI labs solves this (perhaps unfortunately). Backstopped as far as the dollar will go.

52m351

SV_Techie@sv_techie

@rohanpaul_ai Summarized version for easier reading.

33m40

nafi@imon00001

@sv_techie @rohanpaul_ai Is not internet build out required huge capex spending like fiber etc.

22m41

Jasper 🌰@building BBX@bbxjasper

@rohanpaul_ai Damodaran's debt point is the scary one. Dot-com was equity-funded, so when it popped the pain stayed with shareholders. AI capex is increasingly debt-funded — that turns a stock correction into credit defaults that spill way past the believers.

1h122

Shaker Cherukuri@ProcessISInc

@rohanpaul_ai You downloaded the video and posted it here?

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Rohan Paul@rohanpaul_ai

@westernways 🤔🤔

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Rohan Paul@rohanpaul_ai

@inflectivAI +1

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Verus@peoples_vox

The AI Capex has become so big that this is not anymore some companies and banks running it. Its essentially a national project like a big size Manhattan project, so its public who is funding it through stocks and debt. If anything happens to these companies Fed has to step in and save the day, no choice. Touchwood. We cannot fund these kind of mega infrastructure changes without some amount of public funding.

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Gilliard Morandim@GideBello

@rohanpaul_ai @MiguelNicolelis @Savagefiction

1h6

ezyrider@ezyrider

@rohanpaul_ai Meaningless to compare it to the Dotcom boom. Compare to the Telco bubble. Bandwidth -> Compute.

1h5

بن عبدالله@abdull99870

@rohanpaul_ai Sharpens it: much of the debt is off-balance-sheet — SPVs + private credit (Morgan Stanley: PC may fund >half the ~$1.5T to '28). The 2008 echo isn't the leverage, it's the opacity. And the collateral — GPUs — obsoletes fast with no real resale market. Worse than housing.

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istn4u@quickhans

@rohanpaul_ai dumbest inaccurate thing i've heard to date about the dotcom bubble. The trade was literally the same, the internet buildout, buy the arms dealers, it was the chip makers, telco builders, s/w builders, PMC Sierra, Broadcom, JDS Uniphase, Ariba,Cisco. Identical in that sense

20m3

Jasper 🌰@building BBX@bbxjasper

@rohanpaul_ai The $800B in private credit / asset-based finance is the part to watch. Funding capex from hyperscaler cash flow is one thing; financing GPUs that depreciate in 3 years with structured credit is how cycles tend to end in tears.

26m3

SV_Techie@sv_techie

@imon00001 @rohanpaul_ai main difference is dark fiber that we laid is still being used.. While the HW we have will depreciate faster and will become obsolete faster. Plus power/cooling/etc., many other things at play...

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