AI Boom Faces Familiar Funding Gap That Preceded Past Crashes

A pattern that flashed before the dot-com collapse and the 2008 financial meltdown is emerging again, this time in the artificial intelligence sector.

This pattern is what experts call a "funding gap," and the Wall Street Journal has traced its appearance in two previous market downturns. Columnist Jonathan Weil suggests that the AI boom now relies on the same type of capital flows.

The Boom-Bust Signal in 2000 and 2007

Weil enumerates additional hazards for the AI trade, including shortages of power for data centers and competition from smaller players. He contends that a narrowing funding channel is the most pressing danger to monitor.

During 2000, terms like "burn rate" and "funding gap" became widespread as the dot-com bubble burst. Pets.com kept raising money even as it sold goods at deep losses, only to collapse once the funding dried up a few months later.

A comparable situation surfaced in November 2007. Freddie Mac cut its dividend and issued $6 billion in preferred stock. The goal was to strengthen its capital base after heavy losses on mortgages.

Freddie Mac was still unable to attract the common equity that investors demanded. That shortfall helped trigger the crisis that led to government takeover the next year.

Is the AI Trade Showing the Same Cracks?

OpenAI and Anthropic are spending heavily without reporting public profits, according to the Journal analysis. OpenAI's capacity to continue fundraising relies in part on sustained support from Nvidia (NVDA) and SoftBank.

Anthropic's IPO timeline has already been postponed from October to November. Holtec Nuclear, which supplies AI data centers, also suspended its listing this month.

The Journal notes that these delays appear to be early signs of caution rather than confirmation that the funding window is shut. Oracle's (ORCL) debt-driven spending on data centers depends on OpenAI continuing to pay for computing power. That links the broader AI trade to a small number of private labs.

The Journal says booms can end abruptly or fizzle out slowly. Both earlier downturns started once the term "funding gap" re-entered public discussion. Whether that phrase returns for AI, it notes, is something the market will probably recognize only in hindsight.