Was that a stockmarket wobble, or the start of something more serious?

It’s shaping up to be a spooky Halloween on the markets. Nerves over AI, fears about France and soaring oil prices are more than enough to keep any investor awake at night. They also underline the threats to economic confidence and growth over the winter. So far the world economy – and Ireland – has shown a remarkable resilience, particularly to uncertainty and rising energy costs. More challenges, however, lie ahead over this winter. The era of uncertainty just keeps rolling on. Oil prices are rising again and so are wholesale gas prices, threatening higher household and business bills. Global bond markets are nervous at the level of debt in the world economy, with France in particular in the spotlight. Ireland’s cost of borrowing is on the rise, though it remains close to the lowest in the EU. But the big news on markets this week was an AI scare leading to a fall in share prices of the big AI players on Thursday. As the European home of some of the big AI companies and an economy among the most reliant on the US, Ireland has skin in the game here. How this pans out matters.READ MOREThe trigger for this week’s nerves was results from Meta. They underlined the rising scale of investment by big companies in AI and, crucially, how much of it was now reliant on borrowing.Meta increased expected AI investment this year to around €140 billion (that’s about €30 billion more than Ireland will collect in tax this year.) This renewed the focus on the telephone numbers which the so-called hyperscalers – the big tech firms trying to get ahead in the race – are investing, added to by a whole phalanx of smaller companies trying to position themselves for the AI future.Big companies like Meta are highly profitable and generate lots of cash. But such are the demands of AI investment that all the money they generate is still not enough to fund the building out of data centres and other AI infrastructure. This means an increased reliance on borrowed money to fund ever higher investment. S&P Global, the ratings agency, reckons total annual investment by the big six hyperscalers – Alphabet, Amazon, Meta, Microsoft, Oracle and SpaceX – will reach $1.3 trillion (€1.16 trillion) by next year and total $7 trillion up to 2030. [ AI being examined for use in State’s breast cancer screening amid missed targetsOpens in new window ]So far, some $450 billion has been borrowed this year alone by the hyperscalers and the poor reaction to the Meta results reflects nervousness among big institutional lenders, who typically operate under rules limiting the amount they extend to any one sector. Meanwhile, a whole range of complex financial arrangements means the full extent of debts are not visible.In the benign scenario, the large investments start to pay off over the next few years and the companies can scale back borrowings as profits rise. Meanwhile, economies well positioned to take advantage of AI see big rises in productivity.[ Tech sell-off deepens, dents rate hike betsOpens in new window ]The malign scenario is obvious – the expected profits disappoint and the whole thing starts to unravel. Or some companies “win” in the AI race and the losers suffer. The pushback against data centres and AI in general is also part of the mix. History shows how the road to introducing transformative new technologies can be bumpy.The amount of money now being borrowed – some of it deliberately off balance sheet – is key when it comes to spreading risk across the wider economy. It spreads the risk beyond the compsmy’s shareholders and employees to a whole range of financiers and lenders, with implications for the financial system. Remember that while equity holders in banks were wiped out during the 2008 crash, the real damage came from the infection of the wider banking and financial system. And the complex financial structures being dreamt up to fund AI have uncomfortable echoes of what went on in the early 2000s, as debt was sliced up and sold on with little focus on the associated risk.For Ireland, all this is important. Our economic reliance on the US and a few of its biggest multinationals for exports and tax revenue is well known.But AI is also driving investment here – with large amounts going into new data centres and associated projects. The Central Bank estimates that AI-related investment in Ireland was up 24 per cent in the second quarter of this year, compared to the same period last year and is the key driver in higher multinational investment at the moment.The vast bulk of the goods involved were imported – some €7.7 billion in AI-related imports were recorded in the second quarter, the bank calculated – though some of these appear to be re-exported by Irish multinational hubs. Ibec’s recent economic outlook pointed out that Ireland is both the 9th largest exporter (€22 billion in 2025) and importer (€24 billion) of AI-enabling products in the EU.[ Germany offers a stark vision of Ireland’s possible futureOpens in new window ]But the investment that is taking place in Ireland is a boost to Ireland’s economic activity. And like corporate tax revenue, it depends on a few big players. As a key home for US investment in the EU, Ireland thus has a big interest in the wider AI economy and the bets that are being made by the big players who are the State’s biggest private sector investors and also, of course, big taxpayers.AI is a key driver of the US economy – along with resilient consumer spending. And Ireland is the economy in Europe most reliant on the US. The boom could roll on. But the high valuations on the US stock market and the increased debt levels associated with the investment drive increase the risks of some disruption. This is why we need to watch the US stock market and ask whether what we saw this week was a temporary wobble, or the start of something more serious. The AI soap opera features big figures like Mark Zuckerberg and Elon Musk, but the economic stakes are huge. No one doubts the power of AI or its future economic importance. But, equally, no one knows how this will all pan out and where the economic winners and losers will be. As the large bets are placed by the hyperscalers, Ireland is an intensely interested bystander in what is shaping up as a big financial drama.