What if the biggest threat to the Artificial Intelligence (AI) boom isn’t that AI fails, but that it succeeds at a price investors can no longer afford? That is the hidden financial risk behind the AI boom, and investors may be overlooking it as technology companies pour billions into the race to dominate AI.
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For years, the world’s biggest technology companies were prized because they could grow rapidly without constantly building factories, mines or other expensive physical assets. AI is changing that.
Microsoft, Alphabet, Amazon, Meta and Oracle are pouring extraordinary sums into chips and data centres, with Reuters estimating that every additional dollar of operating cash flow between 2025 and 2027 could be matched by around $1.57 of additional investment.
We are already seeing what that can do to some of the world’s biggest cash-generating businesses. Alphabet recently recorded negative free cash flow for the first time in more than two decades. Reuters expects the five technology giants combined to eventually spend more on new investment than they generate in free cash flow.
As a result, public markets are beginning to ask some uncomfortable questions.
In Australia, data-centre developer Firmus Technologies has reportedly been forced to reconsider a proposed valuation of nearly $44 billion, and its ASX listing is now uncertain. That’s particularly striking given its valuation was below $2 billion roughly a year ago and about 97 per cent of its contracted revenue reportedly relates to facilities that have not yet been built.
It isn’t alone. SoftBank-backed US data-centre developer SB Energy has also delayed its IPO as investors scrutinise its enormous funding requirements. Meanwhile, OpenAI has ruled out a 2026 listing, citing AI safety concerns rather than investor demand.
This is where I think investors may be missing the bigger risk.
AI companies need enormous computing capacity. Data centres need billions in financing. Chipmakers need those data centres to keep expanding, and technology giants need AI revenues to eventually justify all that spending.
Each part of the chain increasingly relies on the next.
That doesn’t mean AI is a bubble or that the technology will fail. Demand may ultimately justify today’s investment, but markets don’t need AI to fail for shareholders to lose money. Expectations simply need to outrun the cash these businesses eventually produce. Let’s not even entertain the idea that a lower-cost competitor enters the fray, which I believe is the biggest risk.
Ultimately, what will decide how this ends up is whether those contracts eventually generate enough cash to pay for the revolution investors have already priced in. AI may change the world and still be a terrible investment at the wrong price.
Best and Worst Sectors
Healthcare was the best-performing sector so far this week, rising more than 2 per cent as investors rotated towards defensive healthcare stocks amid market volatility, with gains in Cochlear and biotech companies providing support.
Utilities gained over 1.8 per cent as investors sought more stable earnings amid rising bond yields and economic uncertainty.
Energy rounded out the top 3, up over 1.7 per cent, as renewed Middle East supply concerns supported oil prices and Australian energy stocks, although WTI crude remained below the key US$100 level.
At the other end of the market, Information Technology was the worst sector so far this week. It fell more than 4 per cent as rising global bond yields weighed on growth-stock valuations.
Materials was the second-worst sector, dropping just under 1 per cent as broad selling across iron ore, gold, lithium and rare earths stocks dragged the sector lower despite some underlying commodity prices holding firm.
Industrials rounded out the worst performers this week, falling more than 0.8 per cent as rising borrowing costs and concerns about the Firmus data centre IPO weighed on sentiment.
Best and Worst Stocks
Cleanaway Waste Management led the ASX Top 100 this week. It climbed more than 6 per cent following renewed progress on EQT Infrastructure’s proposed takeover, with investors encouraged by the prospect of a deal.
Telix Pharmaceuticals followed, rising over 4.5 per cent after its brain cancer imaging drug Pixclara began commercial use in the US, while UBS upgraded its price target from $22 to $26.
Insurance Australia Group Limited rounded out the leading performers, gaining over 4 per cent as investors favoured defensive insurers, with IAG also challenging the competition regulator’s decision to block its proposed RAC Insurance acquisition.
At the other end, AMP Limited was the weakest performer, falling more than 5 per cent amid concerns about higher interest rates and weaker investor sentiment.
Ramelius Resources followed, falling over 4 per cent amid broader gold-stock selling, while its quarterly update highlighted weather-related production disruptions despite stronger cash reserves.
NEXTDC Limited rounded out the worst performers, also falling more than 4 per cent as rising bond yields intensified concerns over the company’s substantial data centre expansion costs, funding requirements and future profitability.
All Ordinaries Index Update
The All Ordinaries Index started the week with buyers in control, but sellers took over on Thursday, pushing the index down around 0.35 per cent. This has become a familiar pattern over the past three weeks: buyers drove the market higher, only for Thursday’s selling to wipe out those gains. That puts the key 8,830 level back in the spotlight, with Friday shaping up as another important session.
Interestingly, buyers have stepped in on each of the past three Fridays, helping the market recover and close the week above 8,830. If we are going to see any convincing signs that a sustained rally is beginning, that pattern needs to continue. A weekly close below 8,830 would suggest buyers have finally lost the battle at this critical level, increasing the likelihood of a further decline towards 8,600.
If buyers successfully defend 8,830, the next challenge will be reclaiming 9,000. More importantly, I want to see the market hold above that level before we become more confident a meaningful recovery is underway.
Seasonally, October is still tracking below its historical average return of around -0.25 per cent, although we are only in the early stages of the month and coming off a particularly bearish September. What interests me more is how long this weakness has persisted.
After the previous two significant market peaks, the All Ordinaries established a four-week low. We are now approximately eight weeks into the decline from the August 2026 peak, raising the question of whether the market is approaching a turning point or preparing for another leg lower.
For now, investors need to remain selective and prepared for either outcome. After all, successful investing isn’t just about how much money you make. It’s equally about knowing when to take profits, protect your capital and, perhaps most importantly, when to stay out of the market altogether.
Good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at ww.wealthwithin.com.au.
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