Treasury's Own Analysts Warn of an AI Bubble

A draft report circulating inside the U.S. Treasury Department warns that the artificial intelligence boom carries risks that echo the dotcom bust of the early 2000s, according to a document obtained by NOTUS. The assessment was written by career analysts and prepared for Treasury Secretary Scott Bessent, Federal Reserve Chair Kevin Warsh and other financial regulators. It sits awkwardly beside the administration's public enthusiasm for AI spending.

The analysts stop short of predicting a crash. Their point is subtler, and in some ways more uncomfortable. AI firms, they write, are "more deeply entrenched in the U.S. economy than their dotcom predecessors and pose significant risk to the entire system if financial conditions change." Where the dotcom era ran on speculation and cheap debt, today's leading AI companies are mature and profitable. That maturity is exactly what makes them load-bearing.

Why this bubble would break differently

The report argues that a downturn in AI would land harder on institutional investors than the dotcom collapse did. Retail investors drove much of the late-1990s frenzy, so the losses were widely scattered. This time, pension funds, private credit markets and the large institutions that anchor the financial system hold more of the exposure. Fewer everyday investors are along for the ride, which sounds reassuring until you consider who is.

The analysts trace a chain of dependencies that would feel a sustained AI dip: stock markets, private credit, the companies financing data center construction, cloud providers, chip manufacturers and the utilities straining to power all of it. Each of those has been a headline in its own right this year. The report's contribution is to draw them as one connected system that could contract together if the promised productivity gains fail to arrive on schedule.

A quiet dissent from inside the building

What gives the document weight is the contrast with the message coming from the top of the same department. Bessent has publicly praised the roughly $750 billion in AI buildout planned this year, asking, "Could we do at least that? Can we do maybe more?" A Treasury spokesperson dismissed the draft as "unvetted" and restated the official line that AI "will be a key driver of America's new Golden Age."

Career analysts flagging systemic risk while political leadership talks up the boom is a familiar Washington pattern. It rarely settles the argument, but it does put down a marker. The warning also lands as policymakers abroad reach similar conclusions. The Bank for International Settlements and several central banks have cautioned in recent weeks that AI-driven equity gains are propping up markets in ways that could unwind quickly, as Euronews reported.

None of this tells you when, or whether, the music stops. It does suggest that some of the people whose job is to watch for the next crisis have started writing memos about this one. For our earlier look at how enterprises began reining in their AI budgets, see The Tokenmaxxing Boom Is Over.