Is the AI-Driven Tech Sector Facing a Looming Bubble?

The artificial intelligence (AI) revolution has ignited a frenzy of capital allocation, with tech giants and infrastructure providers pouring trillions into data centers, cloud computing, and hardware. Yet, beneath the surface of this boom lies a growing unease: a confluence of unsustainable debt, earnings manipulation, and systemic overvaluation risks that could trigger a market correction. This analysis examines Oracle's $105 billion debt expansion, the Magnificent 7's leverage-driven growth, and warnings from skeptics like Michael Burry and KKR to assess whether the AI sector is teetering on the edge of a bubble.

Oracle's $105B Debt Expansion: A Canary in the Coal Mine

Oracle's aggressive AI infrastructure bets, epitomized by its $300 billion Stargate Project with OpenAI, have pushed its debt load to unprecedented levels. In 2025, the company secured $18 billion in a 40-year bond issuance and is preparing a $38 billion term loan to fund data centers in Wisconsin and Texas according to analysis. These moves, while indicative of confidence in AI's future, have raised red flags. Oracle's leverage ratio now exceeds 4× debt/EBITDA, with trailing free cash flow negative due to surging capital expenditures according to financial analysis. Moody's and other rating agencies have downgraded Oracle's outlook to "Negative," warning that its debt burden could jeopardize its investment-grade status according to market reports.

The Stargate Project itself is a high-stakes gamble. OpenAI's $60 billion annual cloud-compute costs and projected $115 billion in losses between 2025-2029 highlight the fragility of Oracle's revenue model. While Oracle has explored GPU rentals and customer-provided hardware to mitigate capital outflows, the interdependence of its financing with OpenAI's success creates a circular risk. If OpenAI fails to monetize its AI models at scale, Oracle's $105 billion in debt could become a catalyst for a broader financial crisis, akin to the 2008 housing collapse.

The Magnificent 7: Leveraged Growth and Systemic Risks

The Magnificent 7 (Mag 7)-Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla-have become the bedrock of the S&P 500, accounting for over 40% of its market cap in 2025. Their collective AI-driven earnings growth 26.6% YoY in Q3 2025 has fueled market optimism, but this concentration also amplifies systemic risks. For instance, Microsoft's Azure now derives 16% of its growth from AI, up from 5% in 2024 according to market data, while Meta and Amazon face pressure from AI-related capital expenditures.

The sector's reliance on debt is particularly concerning. Hyperscalers like Meta issued $30 billion in bonds in October 2025 according to financial reports, and Oracle's $95 billion in U.S. bonds has made it the largest non-bank issuer in major corporate bond indices according to investment analysis. Goldman Sachs warns that tightening hyperscaler bond spreads 0.78% in 2025 may signal complacency, as credit spreads typically widen before market corrections. Oracle's five-year CDS spread, for example, has more than doubled to 147 basis points, reflecting heightened default risk. Other Mag 7 companies, including Microsoft and Amazon, have also seen rising CDS spreads, underscoring a broader reassessment of credit risk.

Earnings Manipulation and Depreciation Strategies

The Mag 7's earnings growth is partly driven by aggressive accounting practices. Nvidia and Palantir, for instance, have extended depreciation schedules for AI hardware to smooth earnings, masking the rapid obsolescence of cutting-edge chips. Michael Burry, the investor who famously shorted the 2008 housing bubble, has criticized this practice, arguing that it inflates profitability metrics and misleads investors. The Wall Street Journal notes that AI chips depreciate faster than traditional assets, yet companies often use 5–7 year depreciation periods, understating costs and overstating returns.

This financial engineering is compounded by the sector's capital intensity. Hyperscalers are projected to spend $385 billion on AI infrastructure in 2025 alone according to market analysis, with Oracle's Stargate Project representing a $500 billion commitment. While these investments have driven productivity gains estimates suggest a $2–$3 return per $1 invested in AI, they also create a leverage trap. If demand for AI services slows, the sector could face a "capex winter", devastating hardware vendors and cloud providers.

KKR's Skepticism and the AI Infrastructure Bubble

KKR's Raj Agrawal has sounded alarms about the AI data-center boom, warning that capital inflows are outpacing economic viability. The firm has narrowed its focus to high-quality locations like Virginia and prioritized projects with full insurance coverage, signaling caution. Agrawal's skepticism aligns with broader concerns about speculative momentum in the sector. For example, CoreWeave's stock plummeted after downgrading guidance, exposing vulnerabilities in the AI infrastructure ecosystem.

KKR's own investments, such as a $700 million stake in Saviynt and a multibillion-dollar data-center partnership with Compass Datacenters, highlight the firm's cautious optimism. However, its stock trades at a 53x P/E ratio implying the market is pricing in aggressive growth assumptions that may not materialize.

Conclusion: A Call for Caution

The AI-driven tech sector's current trajectory mirrors the dot-com bubble, but with a critical difference: this boom is debt-fueled. Oracle's $105 billion in bonds, the Magnificent 7's leverage-driven growth, and earnings manipulation through depreciation strategies all point to a fragile equilibrium. While the sector's productivity gains are real, the risks of a correction are acute. Investors should prioritize diversification, favoring equal-weight S&P 500 ETFs and value-oriented portfolios to mitigate concentration risk. As Burry and KKR caution, the AI bubble may not burst in a single day-but the cracks are already forming.