Moody's Chief Economist Warns: Tech Firms' Debt Levels Exceed Dot-Com Bubble, Posing Systemic Risks

Moody's Chief Economist Mark Zandi has maintained a bearish outlook on the U.S. economy throughout the year. While consistently monitoring recession risks, the economist recently highlighted another concerning trend in the tech sector.

Zandi pointed out that mega-cap AI companies are accumulating massive debt through record-breaking bond issuances in 2025, surpassing the borrowing levels of tech firms during the years preceding the dot-com bubble burst.

He wrote on X: "Year-to-date debt issuance by all tech companies—including AI firms and telecom operators that borrowed heavily around the millennium to expand internet infrastructure—has dwarfed the borrowing seen during the late 1990s."

The economist emphasized that corporations aren't merely refinancing existing debt but are significantly increasing borrowings to compete in the booming AI market. Even after adjusting for inflation, Zandi noted that tech sector borrowing has reached historic highs. He warned this debt surge poses substantial risks to both financial markets and the broader economy.

"AI companies' borrowing should be monitored as a growing potential threat to the financial system and wider economy," Zandi cautioned.

His post reiterated his earlier pessimistic views this month about AI market prospects, warning that misguided optimism could fuel an investment frenzy. These concerns align with other commentators who have raised alarms about massive spending on AI infrastructure and data centers.

Skeptics worry that even for industry leaders, AI returns remain uncertain, and the technology's economic benefits could be easily disrupted—mirroring the early 2000s dot-com collapse.

Zandi cautioned that if companies fail to meet expectations, it could trigger stock declines, negatively impact other tech stocks, and undermine sector-wide confidence.

The economist further warned that while the 2000s crash primarily affected equity investors, today's elevated debt levels mean any AI-driven market disruption would have broader systemic consequences across financial markets.