Elliott Warns Debt-Funded AI Spending Adds to Bear-Market Risks

In an October letter to investors, Elliott Investment Management warned that U.S. budget deficits, inflation, private-credit risks and debt-funded AI investment are raising bear-market risks.

The firm compared current markets with the expansion that came before the Great Depression. It pointed to investment flowing between AI model developers and infrastructure makers, along with borrowing to pay for AI capital projects.

If one or two key conditions reverse, Elliott warned, investor sentiment could swing from fear of missing out to fear of being wiped out, triggering a chain-reaction sell-off.

Co-CEOs Paul Singer and Jonathan Pollock said protecting capital is the firm’s immediate priority. They said Elliott is keeping funds available for opportunities after market turbulence.

The fund returned just under 2% in the first nine months of the year, compared with an approximately 13% gain for the S&P 500 over the same period.