Enron AI

As Trump's endless battles capture the majority of media attention, Wall Street's Enronesque AI bubble has been growing quietly in the background.

Another Tech earnings season just ended and once again Wall Street extrapolated AI spending to ever greater heights. This process of constantly re-rating AI spend higher is the ONLY thing keeping the AI bubble from imploding. In the meantime, the widely ignored risks continue increasing. Make no mistake, Wall Street is making an absolute fortune from this AI bubble due to the underwriting commissions of record new stock and new bonds issuance.

As of 2026, total IT spend will be almost 3x peak Y2K levels on an absolute basis.

Adjusted for inflation, today's spending dwarfs Y2K. And Wall Street capex estimates keep going higher.

By necessity.

One re-rating in growth lower and this entire Ponzi scheme collapses.

This past week famed Big Short investor Michael Burry compared Nvidia's latest massive new financing deal to Enron:

"Michael Burry, the investor who predicted the 2008 global financial crisis, has issued a stark warning comparing Nvidia's $500 billion AI infrastructure financing platform to Enron, the energy giant that collapsed in 2001. Burry criticized Nvidia for transforming AI chips into financial assets and creating abnormal credit structures, pointing to circular financing concerns"

Burry's concern is valid, however he is focused on one company's deals, within the total universe of AI. The bigger concern is that the stock market itself is now 100% dependent upon AI for ALL future growth and AI is now 100% dependent upon record debt and equity issuance to fuel that growth. There is no prospect for a self-funded AI economy any time in these next several years.

In a normal investment cycle, the investment phase (negative cash flow) and monetization phase (positive cash flow) are two totally separate events that are not over-lapping. No analyst attempts to calculate "profit" during the investment cycle. However with AI, Wall Street has totally upended that standard model by conflating capex investment with S&P 500 profit. Now the investment phase and the monetization phase are the same thing. Even though the future state ROI of AI is still totally unknown. This conflating of investment with return has led Wall Street to continue upgrading the S&P 500 even though AI cash flow is DEEPLY negative.

For now, negative cash flow can be ignored because company's are using low depreciation rates to hide their massive losses - another risk Michael Burry raised last year. However basic math tells us that if this level of investment continues for a multi-year period of time, then hyperscaler depreciation will eventually catch up to semiconductor revenue and net S&P 500 profit will fall back to ZERO. The hope is that AI ROI actually shows up in the meantime. If you build it they will come. Or, this Enron-inspired accounting model will implode 100% guaranteed.

Which gets us to the casino:

The SpaceX IPO already imploded the momentum trade in July.

Since that time the AI momentum trade has had a dead cat bounce, but Wall Street remains on track to dump record stocks and bonds into this market for the remainder of 2026 to continue fueling their Enron model.

If they stop issuance, the market implodes. If they continue issuance, the market implodes.

AI is now driving up bond yields globally. The U.S. Treasury was forced to refinance at the highest 30 year rate since 2007:

Hedge funds remain massively exposed to AI:

Top hedge fund stock holdings as of this writing are ALL Tech stocks:

Apple is the only stock on this list that is not a major AI component. The rest of these stocks are massively levered to AI.

In summary Wall Street has conflict of interest due to their record underwriting fees which is why they are continually upgrading the Ponzi stock market:

Barron's this week:

"[Price] Dispersion can stem from real differences in opinion—or from analysts’ incentives. Some analysts genuinely disagree on a stock’s value, while others hold off on cutting price targets to maintain good relationships with the companies they cover"

Indeed.

ONE re-rating in growth lower and this entire Ponzi scheme collapses.