How the AI Bubble Could Burst: Forensic Accountant Warns of Impending Collapse
As the artificial intelligence (AI) sector continues to attract massive investments and dominate headlines, a leading forensic accountant is sounding the alarm about a potential crash that could mirror the collapses of major corporations in the past. Anthony Scilipoti, known for predicting the downfalls of companies like Valeant Pharmaceuticals and Nortel, recently shared his concerns in a widely discussed podcast episode, warning that the current AI boom may be built on shaky financial foundations.
Lessons from Past Collapses
Scilipoti’s track record in identifying corporate vulnerabilities stems from his ability to ask the right questions and scrutinize financial details that others overlook. He pointed to the collapses of Valeant and Nortel as cautionary tales, where companies appeared strong on the surface but were ultimately undone by unsustainable business models and overreliance on external financing.
“What happened with Nortel was that they could borrow money, raise capital, and keep the wheels turning for a while,” Scilipoti explained. “But when the equity market started to wobble and there was no one left to buy their products, the whole structure collapsed. The same pattern is emerging today in the AI sector.”
The Circular Nature of AI Investments
One of Scilipoti’s main concerns is the circular nature of investments in the AI industry. Major players like Nvidia, Microsoft, and OpenAI are deeply interconnected, with each company acting as both investor and customer to the others. Nvidia supplies chips to OpenAI, while Microsoft invests in OpenAI and also provides cloud services. This creates a web of dependencies that could amplify risks if one part of the system falters.
“Nvidia invests in OpenAI, and OpenAI becomes a customer of Microsoft, which also invested in OpenAI. It’s all circular,” Scilipoti noted. “When the market starts to wobble, and there’s no new capital or demand, the whole structure can unravel quickly.”
AI: Information Without Insight
Scilipoti emphasized that while AI provides vast amounts of information, it does not necessarily offer insight. The ability to process data is not the same as understanding the underlying risks and dynamics of a business. He warned that relying too heavily on AI-generated analytics could lead to poor decision-making, especially when those analytics are based on flawed or incomplete data.
“AI gives you information, but not insight,” he said. “The discipline to notice what everyone else ignores is what separates successful investors from those who get caught in the collapse.”
The Danger of Cheap Risk
Another key point Scilipoti raised is the concept of “cheap risk.” In periods of market optimism, risk often appears to be cheap and manageable, leading to excessive borrowing and investment. However, when market conditions change, the true cost of that risk becomes apparent, often with devastating consequences.
“Cheap risk is often the most expensive,” Scilipoti warned. “Nothing matters until it does. When the market turns, the risks that were ignored or underestimated can quickly become catastrophic.”
What Comes Next?
As the AI sector continues to grow, Scilipoti’s warnings serve as a reminder of the importance of due diligence and critical thinking. While the potential of AI is undeniable, the financial structures supporting it may be more fragile than they appear. Investors, companies, and policymakers must remain vigilant, asking tough questions and scrutinizing the fine print to avoid repeating the mistakes of the past.
“It’s a conversation about the difference between seeing and understanding,” Scilipoti concluded. “The discipline to notice what everyone else ignores is what will ultimately determine who survives the next crash.”
As the AI bubble continues to expand, the lessons from past corporate collapses may prove more relevant than ever. The coming months could reveal whether the sector is built to last—or whether it’s headed for a dramatic fall.