Markets Face a Big Risk From This AI Spending Spree. What to Watch.

(RONNY HARTMANN/AFP via Getty Images)

It’s the driving force behind the fourth industrial revolution and supposed to replace every time-consuming task, but can artificial-intelligence keep track of the barrage of deals fueling its own growth? The flurry of AI partnerships and financing arrangements are complex and hard to follow—and that could be a threat to the market.

OpenAI stole the spotlight again Monday, adding Amazon to its computing partners—although a $38 billion commitment is just a small addition to the more than $1 trillion in total spending the ChatGPT developer has planned. Meanwhile, Amazon and peer Microsoft struck multibillion-dollar deals for additional capacity from Bitcoin miners-turned-AI computing companies.

That’s not all. Google raised $25 billion in debt on the same day, as Wall Street began to severely doubt the idea that AI spending can be fully funded from Big Tech’s cash flows. The solution seems to be the use of special purpose vehicles to keep borrowing off the balance sheet —as shown by Meta Platforms, which raised around $30 billion that way last month.

All of this is being justified by the overwhelming demand for AI computing. And there are some positive signs. OpenAI CEO Sam Altman said the company’s revenue is “well more” than reports of $13 billion a year and could reach $100 billion by 2027. AI software champion Palantir expects revenue of around $4.4 billion this year, up more than 50% from last year.

Still, those figures pale in comparison with the overall infrastructure investment. The problem, and risk, is circular deals and off-balance sheet arrangements are opaque and make it almost impossible for the average investor to compare revenue with spending.

It’s hard to see a bubble bursting while interest rates are still coming down. But one feature of the 2008-09 financial crisis was increasingly complex financial instruments masking the risks. When you need superintelligence just to understand the AI boom, that’s a worrying sign.

—Adam Clark

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OpenAI Strikes Latest Cloud Computing Deal With Amazon

Under pressure to accelerate the growth of its cloud computing business, Amazon struck a $38 billion deal to feed computing power to artificial intelligence start-up OpenAI. Amazon Web Services will provide the Nvidia-chip-laden infrastructure for the ChatGPT maker’s AI workloads for the next seven years.

• Amazon said the capacity would be deployed by the end of 2026 with the ability for OpenAI to expand the deal in 2027 and beyond. It’s smaller than some other deals OpenAI has arranged this year, including the purchase of an additional $250 billion of Azure cloud services from Microsoft.
• It shows the evolution of OpenAI from an AI research firm to a driving force in the AI infrastructure buildout, as Bloomberg noted. A lack of computing capacity has constrained revenue growth for firms that should be addressed when more capacity becomes available.
• OpenAI CEO Sam Altman said the deal with Amazon Web Services “strengthens the broad compute ecosystem that will power this next era and bring advanced AI to everyone.” AWS didn’t provide more details beyond the dollar amount and seven-year term.
• Separately, Microsoft will invest nearly $8 billion in the United Arab Emirates over four years, bringing its total investment in the U.A.E. to $15.2 billion this decade. President Brad Smith emphasized its role in exporting U.S. technology to the U.A.E., including tens of thousands of Nvidia’s AI chips.

What’s Next: Microsoft will invest $7.9 billion on AI projects in the U.A.E. over four years. Its role suggests the White House is still reluctant to allow unlimited exports of advanced AI chips to the Middle East, despite the UAE’s pledge to invest $1.4 trillion in the U.S.

— Nate Wolf and Adam Clark

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Palantir CEO Karp Touts Its Strong Third-Quarter Results

Palantir began as a defense contractor and has since found other customers selling a platform that funnels data into simple dashboards that use artificial intelligence to aid decision-making. CEO Alex Karp insists it’s not hyperbole to say the third quarter was the best any software company has ever delivered.

• Palantir’s U.S. business continues to see blockbuster growth, up 77% from 2024, boosted by a 121% rise in U.S. commercial sales. Overall revenue rose 63% to $1.2 billion and adjusted earnings of 21 cents a share beat expectations. Government revenue rose 52% from last year.
• The stock reached another record close on Monday, and continued to climb in after-hours trading. Shares have more than doubled this year. Karp told shareholders that it was worth remembering the business produces more profit in one quarter than it did revenue not too long ago.
• Palantir has a devoted online community of retail investors but strong financials and a stratospheric stock valuation have flamed disagreement on Wall Street. Karp addressed the bears in his shareholder letter. “Some of our detractors have been left in a kind of deranged and self-destructive befuddlement.”
• Karp can brag about Palantir’s growing clout inside the Washington beltway, which is helping it land more government contracts such as a $100 million agreement for the Internal Revenue Service and a $400 million agreement for the State Department.

What’s Next: It projected fourth-quarter revenue of $1.33 billion, also ahead of expectations, and said that U.S. commercial sales growth would continue to be in the triple-digits. For the full year it raised its revenue estimate to a range of around $4.39 billion to $4.4 billion, also above expectations.

— Adam Levine and Liz Moyer

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Trump Threatens to Cut NYC Funds Ahead of Mayor Vote

Millions of Americans will head to the polls on Tuesday to elect governors in Virginia and New Jersey and a mayor in New York City. President Donald Trump made a final effort to influence the Big Apple race.

• Trump threatened to hold back federal funds to the city if the Democratic candidate is victorious. “If Communist Candidate Zohran Mamdani wins the Election for Mayor of New York City, it is highly unlikely that I will be contributing Federal Funds, other than the very minimum as required, to my beloved first home,” he wrote in a post on Truth Social.
• The president endorsed former New York Gov. Andrew Cuomo, who is running as an independent candidate. “Whether you personally like Andrew Cuomo or not, you really have no choice. You must vote for him, and hope he does a fantastic job,” Trump said.
• Mamdani and fellow Democrats Abigail Spanberger and Mikie Sherrill, who are running for governor in Virginia and New Jersey respectively, have all promised to lower the cost of living. Surveys suggest voters aren’t happy with how Trump has handled the economy and inflation during his second term.
• Meanwhile, there are still no signs of a breakthrough in negotiations to end the government shutdown, which started on Oct. 1. If the funding impasse isn’t resolved on Tuesday, it would become the longest in U.S. history, surpassing the previous 35-day record.

What’s Next: Despite Trump’s 11th-hour intervention, Mamdani remains a strong favorite to become NYC mayor. There’s a 91% chance the Democrat candidate wins the vote, according to a poll run by the online prediction market Polymarket.

— Adam Clark and George Glover

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Kimberly-Clark’s Deal for Kenvue Raises Some Doubts

Kimberly-Clark, known for its paper products, plans a move into over-the-counter drugs, but its method is raising doubts: It unveiled a $40 billion deal for embattled Tylenol maker Kenvue. Kimberly-Clark’s CEO Mike Hsu said it would create the largest pure play consumer health company. Investors aren’t convinced.

• A Johnson & Johnson spinoff, Kenvue’s stock has tumbled since the White House suggested a link between the use of Tylenol during pregnancy and childhood autism. Kimberly Clark’s offer values Kenvue at $19.25 a share. Even with Monday’s 12% gain, it trades under $17. Kimberly Clark stock fell 14%.
• In addition to assuming potential litigation risk for the Tylenol brand and talc lawsuits outside the U.S., Kimberly-Clark must reckon with other risk factors in the deal, TD Cowen analysts said. The deal will likely attract extensive regulatory reviews in multiple geographies, they said.
• There’s always a chance the transaction won’t pan out and that ongoing Tylenol lawsuits could constitute a material adverse effect that would void a deal. In addition, Kenvue’s past earnings reports reveal that Kimberly-Clark is buying a business whose growth has stalled.
• Kenvue posted net sales of $15.44 billion in 2023, the same year it finalized its separation from Johnson & Johnson. In 2024, the figure was nearly the same, at $15.45 billion. Analysts polled by FactSet are expecting $15.12 billion in sales this year.

What’s Next: Activist shareholders caught a break, however, as The Wall Street Journal notes. D.E. Shaw, with a 3% stake, had paper losses in Kenvue stock until the deal’s announcement, the Journal reported, citing people familiar with the matter. Toms Capital, Starboard Value, and Third Point also have exposure.

— Mackenzie Tatananni and Liz Moyer

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Starbucks Strikes Deal to Accelerate China Growth

Starbucks struck a deal to help its operations in China, where it has approximately 8,000 stores. It’s selling a majority stake in the unit to private-equity firm Boyu Capital. Starbucks CEO Brian Niccol said it could help accelerate growth into smaller cities and new regions in the country.

• Boyu will own up to 60% of Starbucks’ China retail operations while Starbucks will keep 40% and continue to own the brand and intellectual property. Boyu will acquire its interest based on a cash free, debt free enterprise value of approximately $4 billion for the whole Starbucks China business.
• Starbucks expects the total value of its China retail business to exceed $13 billion, counting upfront proceeds from the sale, its remaining stake, and licensing income over time. It has long been expected Starbucks would sell some of its stake in China.
• The coffee retailer has struggled in China, long one of its key growth markets. As Chinese consumers become more price-sensitive, the premium cafe experience it pioneered is losing some of its edge. Rivals such as Luckin Coffee are offering cheaper drinks and more locations in smaller cities.
• Starbucks has been leaning into local-flavor drinks, more flexible store formats, and lower prices in China. In the latest quarter ended in September, same-store sales in China improved 2% from a year ago. Although average order prices shrunk, it was more than offset by the increase in transactions.

What’s Next: The new joint venture with Boyu could help the company adapt more quickly to local competition and changing consumer demands in the future. The joint venture is expected to close in the second quarter of Starbucks’ fiscal year 2026 that ends next September, after regulatory approvals.

— Evie Liu

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner