AI reliance leaves US stocks exposed to higher rates and forced selling

The US economy and stock market’s growing reliance on AI could leave them vulnerable to a deeper correction if borrowing costs rise and investors using debt are forced to sell. The concerns center on the financing behind AI companies’ earnings and the sustainability of investment spending.

Speaking in a discussion on Mario Nawfal’s X account on November 9, financial educator Jaspreet Singh argued that the US economy would have been in recession without AI spending and growth. He said a slowdown among the AI companies supporting the market could affect both stocks and retirement accounts.

Singh said the AI industry differs from companies associated with the dot-com bubble because its businesses generate revenue and often profits. However, he pointed to concerns raised by Michael Burry and others about circular financing: Nvidia invests in OpenAI, which then uses that funding to buy Nvidia chips. He described the concern as money circulating among the same 10 to 15 companies, supporting one another’s results.

He also highlighted narrow market participation. Singh claimed that, a few days earlier, about 83% of S&P 500 constituents were in correction territory, down at least 10%, even as AI companies helped push the index to record highs. He said Americans holding S&P 500 investments or target-date funds through their retirement accounts also had substantial exposure to AI.

Singh said market downturns have historically produced both heavy losses and buying opportunities. He identified panic selling and forced sales by investors using borrowed money as factors that deepen declines. When falling share prices prompt brokers to liquidate positions to protect their lending, he said, the additional selling can push prices below levels they would otherwise reach.

He identified higher interest rates as a potential trigger for a bubble to burst, citing the dot-com collapse in 2000 and the housing market collapse in 2008. In housing, he said, rising rates increased payments on adjustable-rate mortgages until borrowers could no longer afford them, helping trigger the collapse.

Singh argued that asset prices ultimately depend on what another buyer is willing to pay, supported by access to capital and expectations for the economy. Lower rates make it easier for individuals and hedge funds to borrow and buy stocks, while higher rates constrain those flows, he said. He interpreted the Federal Reserve’s position as prioritizing inflation and protection of the dollar, and said another rate increase before year-end was highly likely.