Opinion

AI boom enters its ‘nasty’ phase as economic realities set in

The era of unprecedented expansion is giving way to a volatile period where tech firms’ soaring ambitions feel the squeeze

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A man walks past an electronic screen showing the SK Hynix stock price outside a foreign exchange dealing room at the Hana Bank headquarters in Seoul on July 31. Photo: AFP

James David Spellman, a graduate of Oxford University, is principal of Strategic Communications LLC, a consulting firm based in Washington, DC.

Published: 8:30pm, 2 Aug 2026Updated: 9:09pm, 2 Aug 2026

Artificial intelligence (AI) has entered its “nasty” phase – the fast-moving, volatile period when economic reality constrains ambitions and markets separate winners from losers.

The capital expenditure boom, accelerated US-China competition and strategic retrenchment threaten to erase as much wealth as the industry’s unprecedented expansion has created. Returns on capital face mounting pressure to deliver outsize performance. Investors are wary and impatient, rotating portfolios towards companies with clearer paths to profitability, as the recent sell-off indicates.

Nowhere is the scale of the transition more apparent than among the hyper-scalers. Amazon, Alphabet, Microsoft and Meta are collectively expected to spend nearly US$700 billion on capital expenditure in 2026 alone.

Recent earnings releases illustrate the divergent consequences. Meta issued a disappointing revenue forecast as it struggled to prove it can monetise AI, while Microsoft reported record and accelerating cloud revenue, which reinforced the “AI trade”.

Analysts estimate that between US$4 trillion and US$8 trillion will be invested globally in AI infrastructure over the next five years – arguably the largest investment cycle ever.

The frenzy is equally under way in China. Chipmaker ChangXin Memory Technologies soared nearly 470 per cent in its recent market debut in Shanghai, the mainland’s biggest initial public offering (IPO) since 2010. At least six Chinese start-up AI companies are reportedly preparing IPO launches by 2027.

AI boom enters its ‘nasty’ phase as economic realities set in

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The era of unprecedented expansion is giving way to a volatile period where tech firms’ soaring ambitions feel the squeeze

The era of unprecedented expansion is giving way to a volatile period where tech firms’ soaring ambitions feel the squeeze