A Silicon Valley wobble would reverberate worldwide

Last week saw a fresh wobble in investor sentiment towards AI - knocking more than a trillion dollars off the value of US-listed technology shares. Investors, of course, have been here before with such huge losses of shareholder value. But this felt different.

In April 2025 and March 2026, declines in US technology shares were the result of the sector repricing the impact of President Trump’s tariff regime, and the onset of hostilities with Iran. On each occasion the sector regained its composure and pushed on to fresh share price highs.

Last week’s sell-off had less to do with politics, despite the looming US midterm elections. Investors were questioning the economic value, and value destruction, stemming from the extraordinary pace of capital spending being undertaken by the big US hyperscalers - the biggest builders in the global race for AI primacy. The stakes are enormous. More than $1.3 trillion is committed to AI-related investment projects over the next twelve months. Put into context, this is about twice the amount that the entire UK economy - both private and public sectors - will invest over the next year.

Market worries about the impact of AI sit in three broad categories. They were neatly encapsulated by three corporate stories emerging last week. From the search giant, Google. The chipmaker, Intel. And from the cryptocurrency exchange, Binance.

The first concern for investors surrounds the resilience of end demand for computing hardware and software. Intel warned that soft PC demand and supply chain disruption were going to hit fourth quarter earnings, and extend into 2027. Anxiety over who will eventually pay for all the AI investment means such stories - although often firm-specific - receive an outsized market reaction. This sent Intel shares down by a quarter.

Then it was Google’s turn. Its parent company, Alphabet Inc, warned that AI was disrupting its traditional search capability - an advertising and earnings powerhouse. This sits in a second basket of investor anxiety that traditional (and highly profitable) business models are going to be disrupted at a pace and in ways that are hard to predict. If a company as cornerstone to the internet as Google can be disrupted, then what moat does any technology business have?

And finally, there was the hack of the cryptoexchange, Binance, that resulted in the theft of more than $6 billion of cryptoassets. Whether it was ‘bad actors’ from North Korea, as the FBI claims, and whether investors will be made good are both secondary issues. The primary issue is how secure financial activity, and indeed national security, is in an age where AI tools are challenging secure encryption methods. These encryption methods underpin many of the communication and financial transaction platforms that we all rely on in our everyday life.

Governments around the world are warning their electorates of the need to build resilience to disruption, and to stock up on essentials. No less essential is to build defences in the online realm. Secure passwords belong alongside water, food and heating in any sensible contingency plan.

Now, this is an economics column that so far reads a lot like a stock market report. But these concerns from corporate America also have large economic implications, globally, given the sheer scale of the numbers involved.

The first-order impact of all this investment spending on the AI build-out has been as a driver of US economic growth. During the third quarter, private business investment grew at a pace of almost 20% a year. This demand for compute capacity, and associated build-out of data centres, is sucking in resources from outside the United States as imports also surged. Whilst it would be too simplistic to suggest global economic growth has become reliant on technology-related investment spending, there is no doubt that any reappraisal of the efficacy of this spending would send a notable chill through the world economy.

The second macroeconomic impact relates to ‘crowding out’ of other forms of economic activity by the huge demand for capital currently on display by the AI sector. The interest rates that are now paid by governments, households, and the non-AI corporate sector are being pushed higher, in part because lending to these sectors must compete with capital-hungry technology firms. It was notable last week that government interest rates fell around the world as the technology sector wobbled. Investors sought a safe haven in fixed income.

And this speaks to one of the internal contradictions faced by governments the world over right now. Policymakers are desperately seeking higher growth and productivity to help manage their fiscal deficits. And yet the most obvious enabler of that growth - investment in sovereign technology capability - is making their government debts, social security safety nets, and public sector investment plans more costly. After years of governments crowding out the private sector with their appetite for debt, this is an uncomfortable return of the favour by corporate America.

Third, and perhaps most relevant for Times readers, is the impact of any wobble in US technology on the financial wealth of Britons. The Investment Association recently reported that exposure to US shares makes up a record 23% of the £11trillion of assets managed on behalf of British investors. Much of this is concentrated in a small number of technology firms. It would be no exaggeration to say that how the US technology sector performs from here is far more relevant for UK retirement incomes than our own stock market, and even our own economy. That exposure has been a boon for household wealth on the way up, but it would pose some challenging economic questions on the way back down.

That said, the exposure of US households to these stock prices is far greater - with almost two-thirds of Americans now directly participating in the stock market. This compares to less than a quarter of Britons. US investors have supported their own market partly because of strong recent performance, partly because higher interest rates have stagnated the US housing market, and partly because of behavioural change during the pandemic lockdowns. Any retrenchment is not just a problem for US technology giants in Silicon Valley. It would ripple out across Main Street America.

None of us can call an inflection point in financial markets, or investor sentiment. Recent events may yet be another blip in a huge wealth creation event. But evaluating the potential economic impact is an important part of understanding this fast-evolving technology. Last week revealed how sensitive the global economy is to the path of a relatively small number of US technology firms. Such concentration risk is rarely a good economic sign.