Data Center Stocks: The $5T Bubble Rickards Warns About

Data centers are the physical infrastructure of the AI revolution, and Rickards sees them as the epicenter of the bubble. An estimated $5 trillion will be spent on data centers in the U.S. alone. But the companies funding this buildout are already burning cash at unprecedented rates.

Rickards makes perhaps his most provocative claim by comparing data center financing to the subprime CDO crisis of 2008. Private equity funds build data centers, charge AI companies rent, and then combine multiple leases into securities sorted into tranches based on default risk. This is the exact same CDO structure that caused the 2008 financial crisis.

Charlie Warzel of The Atlantic confirmed this practice, writing that private-equity firms put up or raise the money to build a data center, which a tech company will repay through rent, and multiple data-center leases can be combined into a security. Tech journalist Ed Zitron refers to it as subprime AI because it is equivalent to giving no income, no asset loans to subprime borrowers in 2008. David Dayen of The American Prospect said we have a 2000s housing bubble level of financial engineering on top of a 1920s level of private unregulated lending on top of something bigger than a 1990s internet level of technology and infrastructure build-out. Oliver Wyman, a top financial consulting firm, warned that an equity crash like the early 2000s would wipe out approximately $33 trillion of value, more than US GDP.

Rickards draws a direct parallel between today’s AI companies and Lucent Technologies during the dotcom bubble. Lucent aggressively lent billions to cash-strapped customers to buy its equipment, booked the full sale as revenue upfront, and created what Rickards calls a feedback loop that cooked their books. The more money Lucent borrowed, the more it could loan out, the more it got back in revenue, and the more it could borrow. This is known as circular financing.

Today, Rickards argues, Nvidia is investing money in startups that then buy Nvidia’s chips. OpenAI invests in Oracle’s data center buildouts, which then use the money to invest back in OpenAI. Grace Blakeley, a research fellow, called Nvidia the central bank of AI and the lender of last resort. Michael Burry, the investor who predicted the 2008 subprime crash, has called Nvidia the Cisco of the AI boom and said this bubble is too big to save. Lucent ultimately fell from $75 to $0.76. Nortel fell from over $8,000 to around $50. Cisco collapsed from $50 to $8.

OpenAI is losing more than a billion dollars a month. For every dollar the company makes, it spends at least three. Deutsche Bank estimates OpenAI will need to accumulate $143 billion in negative cash flow before making a single dollar in profit. A Deutsche Bank analyst noted: No startup in history has operated with losses on anything approaching this scale.

Despite this, OpenAI plans to IPO for nearly a trillion dollars. Sam Altman, OpenAI’s CEO, once admitted: I have no idea how we are going to generate revenue. Anthropic, another major AI lab, has warned its business could go bankrupt if AI growth forecasts are off by just one year. Elon Musk’s xAI was burning through cash so fast it had to be merged with SpaceX to keep it from going under.

Some of the most successful investors in the world are already exiting AI stocks. Stanley Druckenmiller, who predicted the 2008 financial crisis, has sold all his Nvidia and Palantir shares. Peter Thiel, a techno-optimist and venture capitalist, sold his entire Nvidia stake. Michael Burry made a $1.1 billion bet against AI. Paul Tudor Jones has said this is so much more potentially explosive than 1999. Jeremy Grantham, who once managed over $118 billion in assets, stated: This is obviously a bubble. The probabilities it doesn’t bust are slim to none. Former SEC Chairman Gary Gensler said AI will be the center of the future financial crisis. Even Sam Altman has admitted: A lot of people are going to lose a phenomenal amount of money.

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The package includes six months of Strategic Intelligence plus six special reports: AI Fallout (the biggest AI losers to remove from your portfolio immediately), The AI Black Paper Blueprint (his personal million-dollar roadmap), AI Meltdown Insurance (how to profit from the coming crash), Trump’s AI Arsenal (how investing in AI superweapons could turn $1,000 into $162,000), The Perfect Physical Gold Portfolio, and How to Make Your Home Your Personal Fortress.

Where to Learn More

For the complete analysis, read our AI Black Paper review covering Jim Rickards’ full thesis on the AI Minsky Moment.

See our analysis of subprime AI debt for how data center bonds echo 2008.

Read our deep dive on circular financing in AI for the full Lucent comparison.

Ready to explore Jim Rickards’ full research? Learn more about Strategic Intelligence here.

This is not financial advice. Always do your own research before investing.