Even banks and hyperscalers are now sounding the alarm about the AI bubble

Even banks and hyperscalers are now sounding the alarm about the AI bubble

Oracle's down more than 40% this month, the BIS thinks AI could destroy the economy, and we've got the Kettle on for a chat about the whole mess

Brandon Vigliarolo

Brandon Vigliarolo

Published mon 6 Jul 2026 // 14:00 UTC

KETTLE From international banking worries to the market state of canary-in-the-coal-mine Oracle, the AI bubble is sure looking taut.

The Bank for International Settlements, often referred to as "the central bank for central banks", said in a report at the end of June that it was worried the AI bubble was nigh on to popping and taking the global economy with it. Oracle, the hyperscaler with arguably the largest exposure to the AI bubble, has lost more than 40 percent of its share value in the past month and recently outlined all the ways it might suffer if this whole AI thing doesn't pan out.

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If you ask our systems editor Tobias Mann and senior reporter Tom Claburn, those factors and more make it seem like the AI industry could be on the verge of a massive contraction, and that's the very thing they chat about with Kettle host Brandon Vigliarolo on this week's episode.

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You can listen to the latest episode of The Kettle by clicking on the player above, as well as on Spotify, Apple Music, or YouTube, or read the transcript of the latest episode below. It's been lightly edited for clarity.

Brandon (00:05)

Welcome to the latest episode of The Register's Kettle Podcast. I'm Brandon Vigliarolo, and this week the topic is one that neither we nor the investors of the world can seem to stop thinking about, and that's the possibility that the edges of the AI bubble are beginning to come into focus. I'm joined this week by systems editor Tobias Mann and senior reporter Tom Claburn to talk about the latest news in this space, and there is a lot to talk about, so thanks for joining me guys.

Tom Claburn (00:30)

Yeah, thank you.

Tobias Mann (00:31)

Good to be here.

Brandon (00:32)

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So let's start with a piece our UK editor Paul Kunert wrote, and he couldn't be here for this episode, so we're going to have to pick it apart in his place. And that's the Bank for International Settlements' report that it's worried that the AI bubble could pop and take the global economy with it. Tom, can you explain a bit about what was in that report and what they're worried about?

Tom Claburn (00:51)

So the Bank of International Settlements is sort of like a central bank for central banks or the UN of finance organizations.

Brandon (01:02)

So their opinion matters, basically.

Tom Claburn (01:13)

Yeah, it's not like some person, a blogger having an opinion. This is a big dea. The report raises the specter of all the previous financial manias like the British railway mania of the 1800s and the canal investment bubbles and the dot com bubble.

Brandon (01:26)

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Yeah, the dot com boom, obviously.

Tom Claburn (01:28)

And it draws a comparison saying that all these things shared a common trait, which is that they attracted a lot more capital than the resulting industry could actually produce. And if that's the case with the AI bubble, there are going to be a lot of people who have invested billions in capex who are not going to see that money back. That's presumably not really the best investment scenario. And I think that that's on a lot of people's minds as all these major hyperscalers keep pouring money into this, and in so doing, raising all the costs for the equipment that they're putting into place, making it harder for everybody to get RAM and even consumers to, in the end, buy computers because there are just no supplies of RAM left.

Brandon (02:08)

My wife just bought a MacBook Neo the week before the price went up. And it was like, oh my God. I just sent her an article, and I was like, "Well, you should be glad you bought that now," then she had some issue with the payment and she was worried that it wasn't going to go through and they were going to reset the order and then she had to pay more. But luckily that got cleared up in time. It's affecting everyone.

To put some of these capex forecasts in perspective, I think Amazon is saying that it's planning north of two hundred billion in AI build outs this year. Microsoft's looking at one hundred and ninety billion. Google a hundred and eighty billion. Meta one hundred and forty billion. I mean this is a lot of money being tossed around for potentially no returns, right?

Tobias Mann (03:02)

Well, some of it is empire building with the major hyperscalers. Because if you look at their business models, they can afford to lose a sizable portion of that. Their investors aren't going to be happy, but their investors won't be happy if they're not spending that money either. It becomes a catch-22 for them. But in the event the bubble pops, you can bet Google, Amazon, Microsoft are going to ultimately be fine and have built their empires. It's everybody else that is the problem as far as I can tell.

Brandon (03:40)

Right, which is what the BIS hit on, right? A lot of that report kind of focuses on what could happen to the hyperscalers, which like you said, they'll survive. But it's all the people sort of downwind of them, not just consumers and not just small equipment manufacturers and small businesses that rely on their components and their cloud. I think the report mentioned, Tom, like suppliers, construction firms, all these different people who could potentially be affected if these projects collapse.

Tom Claburn (04:11)

Yeah and it's not just the people in the industry that are building these datacenters, it's the assumptions that rest of all these customers who are going to be then buying these AI services. What if they don't come or what if they have a different idea of what they want to spend? And you're starting to see that with a lot of pushback from people just working on another story about that includes some comments from Palantir CEO Alex Karp, who's talking about how enterprises are very unhappy with this very gate-kept world of frontier AI where there's very little transparency and control.

Ultimately enterprises skew towards being able to control their spending, being able to switch providers, and it's not always possible at any given time, but that's what they're going to push for, and so there's going to be a lot of pressure on everybody in this ecosystem to deliver open source models, affordable models, pricing that's predictable and not have this crazy situation that you have now with someone like Anthropic where things just get turned off, or you try and do a security-related query and it just says, "I'm sorry, Dave, I can't do that." It's not really a viable long-term scenario that people are going to use this on a regular basis.

Brandon (05:26)

Right. I mean, and that's the same with token costs keep fluctuating and going up. I think Karp in that interview, which I think aired on CNBC on the first of July, he was talking about another big thing, and this has been a concern since the dawn of large language models, is where is the data? If you're a customer and you're basically using one of these big frontier labs to host your stuff or to process your stuff, I mean, they're ingesting all that knowledge, right? Whether we can debate over how they're using it, and their terms of service are always kinda very specific, but there's a concern. If you're giving your company secrets over to these large firms, that there's the potential that they could benefit from those things too. It just seems like there's a million and one possibilities. Obviously Karp was pushing Palantir as the solution to that.

Tom Claburn (06:30)

Right.

Brandon (06:31)

Whether you believe that or not is another thing altogether. I mean he made a lot of really good points in that interview. He called himself Crazy Karp. Every time I hear him speak, I always am kind of reminded of just how manic he can be. But he always makes some pretty good points.

Tom Claburn (06:46)

I think ultimately if you look at what Apple is doing with its private cloud computing, which Google has also copied, probably recognizing that that's going to be a real thing, ultimately a lot of these workloads are going to have to move toward that model where the data is kept out of these large frontier clouds and is processed to some degree on premises or in a datacenter that the company has control over because it's just not acceptable to send off all this sensitive data and hope for the best. I think Apple's playing a good long-term game with its hardware story and I think that there will be other players in this space that have similar offerings.

Brandon (07:22)

They're going to have to. I feel like there is a lot of souring on companies like OpenAI and Anthropic and those frontier labs. A lot of people are just kind of fed up with the inconsistencies and what have you.

Speaking of the big labs, OpenAI, I feel like in this current kind of bubble environment that we're living in, OpenAI is kind of inextricably tied to Oracle, right? Through some of the big deals they've made. And it was one of the big hyperscalers I didn't mention up above because Tobias, you wrote a story this week about an SEC filing from Oracle recently that basically is an outline of all the things that might go wrong. And it's extensive. So what were they talking about? it was huge.

Tobias Mann (08:24)

It was a long list. So in the view of looking at SEC filings on a fairly regular basis, you see a lot of boilerplate. This was not boilerplate. This was actually fairly specific to the challenges that they could potentially face. OpenAI has entered into this partnership, initiative, whatever you want to call it, called Stargate, about a year and a half ago now, and Oracle was one of the major founding partners alongside SoftBank and MGX. As it turned out, Oracle was going to be one of the primary financiers of this datacenter build-out. And to the tune of $300 billion of this $500 dollar project over this indeterminate period of time. The numbers just keep getting bigger though.

Brandon (09:28)

Right. And I think Oracle was mentioning, I think last November, about they were going to have to borrow $25 billion a year to afford to pay for this, right? And that was again, without any guarantee that OpenAI was ever going to turn enough profit to pay back its share.

Tobias Mann (09:37)

Right. OpenAI, in case anybody's forgotten, can't pay its own bills. It has to find somebody who's willing to provide cash in exchange for equity or debt. So it's the kind of thing that you find yourself in a situation where you are renting property because Oracle doesn't own its own datacenters for the most part, and then leasing it to a customer who says, "Yeah, I'm good for the rent. it's going to be ready in 2027, 2028 right? Okay, yeah, we're going to need a lot though. Does that work?" And just going ahead with it. Like this is totally going to the company that doesn't make money and is entirely reliant on venture capitalists to fund this, is totally going to be able to pay their cloud bills. And I think anybody who's been paying attention over the last year since Stargate was announced has been scratching their heads going, how exactly is this supposed to work?

Brandon (10:54)

I always cite this $300 billion of investment with OpenAI as a prime example of just the sort of absurdity in AI financing right now. It's just top of the list for me whenever people are like, "Well, what's wrong with AI financing?" I get into conversations so often where Oracle and OpenAI come up because I'm just like here's a picture of this. This is the quintessential example of the insanity of this.

Tobias Mann (11:21)

And so now with this SEC filing we now get Oracle saying what we've all kind of been asking, how is this risk even remotely manageable? And the realit

[truncated for AI cost control]