While the market focuses on interest rates and earnings, a silent threat is emerging that could turn the AI correction into a crash: regulation. Sundar Pichai’s interview with the BBC touched on the energy constraints of AI and the need for national infrastructure. This invites government scrutiny. If governments decide to tax data center energy use, or regulate AI safety more strictly, the profitability of the entire sector could collapse.
Klarna’s CEO Sebastian Siemiatkowski hinted at this when he questioned the “thoughtful thinking” behind the massive infrastructure spend. If regulators decide that building $1 trillion worth of data centers is an environmental disaster, those assets could become “stranded,” destroying shareholder value instantly.
The crypto market is already suffering from regulatory fatigue. Part of the $1 trillion loss is due to the realization that governments are not going to hand over monetary control to Bitcoin. The drop to $91,212 reflects a market coming to terms with the ceiling imposed by the state.
Investors often ignore political risk during a boom, but during a bust, it becomes the primary focus. With the “AI Bubble” now the top concern for fund managers, any negative noise from Washington or Brussels could trigger another leg down.
The “irrational” era of unregulated growth is ending. The next phase of the market will be defined by compliance, constraints, and likely, lower valuations.