AI Bubble or Sovereign Debt: Which Market Risk Explodes First?

Investors fear that artificial intelligence profits will not justify massive investments, but the biggest risk may come from sovereign debt, which they consider safest. AI markets have borrowed against two promises: that AI will create enough wealth to justify valuations, and that governments will always repay debts. Doubts are growing on both fronts. Tech companies and AI infrastructure depend on timely revenue, while heavily indebted states face more expensive refinancing. The two risks may not occur together, but interconnected financing, including off-balance-sheet "shadow loans" and long-term bonds for rapidly obsolete chips, amplifies vulnerabilities. A decline in AI could lower bond yields and ease fiscal pressure, but persistent inflation or credibility concerns could raise long-term rates. The IMF warns that AI-related debt issuance could compete with governments for capital, making sovereign debt the more serious threat.