/Tech11h ago

Damodaran Warns AI Boom's Debt-Fueled CapEx Risks Deeper Societal Pain Than Dot-Com Bust

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Original post

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.

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 · 402.1K Views

Sentiment

Many users dismissed Damodaran's warning on debt-fueled AI capex risks as inaccurate or overly gloomy compared to the dot-com bust, while others praised the analysis for clarifying financing differences and sustainability concerns.

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Neg

87.5%

18 comments with sentiment.

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Rohan Paul@rohanpaul_ai

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

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RETWEETS11REPLIES10

Rohan Paul@rohanpaul_ai

Goldman Sachs Research: AI data centers are no longer being financed mainly by traditional corporate balance sheets.

They are increasingly funded through alternative assets like infrastructure, private equity, real estate, and private credit.

i.e. AI is increasingly becoming a real-assets infrastructure story, not just a software or semiconductor story, data centers are now being financed like pipelines, toll roads, utilities, and warehouses.

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)

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Rohan Paul@rohanpaul_ai

Also they have the full video here.

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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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SV_Techie@sv_techie

@rohanpaul_ai Summarized version for easier reading.

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@nickrackley@nick_rackley

It’s hilarious to me that intelligent people in 2026 seem completely unaware that people are able to builds products and find customers at a fraction of the the historical cost and think somehow that isn’t sustainable. That the providers of these services are just selling into thin air and all will be revealed in the future.

21h9124

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.

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James La Forte@Jlafortetech

@rohanpaul_ai I started in tech during the dot-com bubble. The big thing is that all those new jobs in IT and everywhere else stayed after the dot-com bubble popped.

This was everyone from senior level down to desktop support.

AI never created any jobs before it pops.

23h9137

Ganesh Babu@appakaradi

@rohanpaul_ai What is the rationale of why this will be a bust/bubble?

23h8212

ernesto@westernways

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

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ezyrider@ezyrider

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

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Shashi Bala Sharma@ShashiBala87819

@rohanpaul_ai Will it be only to the US issue, or would it be a world issue? I mean, the bubble will pop, and according to Ruchir Sharma, it pops when interest rates are high. Even if they reduce rates, the bubble's size will increase as time passes; it's impossible that it will solidify ever

17h42111

The Psycho Analyst@TheRealBirnbaum

@rohanpaul_ai Pretty much every sentence written here is factually false.

9h20911

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

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AStupidBull@rkroutbbsr

@rohanpaul_ai @TheNavroopSingh How many times his theories have bitten the dust infront of markets everyone looks stupid !! Only thing is follow the market not experts !! You will be safe !!

18h2913

Krishna Pera@krishpera

Prof. Aswath Damodaran is right on the asset valuation mismatch, but the structural debt risk is even wilder. Eventually, hardware costs will crash or next-gen architectures like Quantum Computing will render current setups obsolete.

If that happens, $4T of debt-funded AI data centers face catastrophic asset devaluation … threatening the US shadow banking and private credit ecosystem.

Meanwhile, China and India are playing a much safer calculated game focused on sovereign funded AI investments , avoiding this massive systemic credit risk.

@TVMohandasPai

20h2142

AGTrader@agtrader

@rohanpaul_ai AI providers are burning thru cash to get eyeballs just like the dotcom era

16h3654

Sunny California@desicounty

@rohanpaul_ai @AswathDamodaran makes great points but there was huge capital investment in building telecom infrastructure or backbone of Internet. Billions were invested in it. Lucent, Nortel & many other went out of business & telecom industry was dead until now (for 25 years). 1/n

19h263

Braden Gibson@BlargBlargBla

@rohanpaul_ai There was plenty of debt in the dot-com bubble. Telecoms laying fiber led to MCI Worldcom famously going bust. @grok can you compare the two booms from a debt perspective?

11h193

nafi@imon00001

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

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