• A draft U.S. Treasury report warns that the artificial-intelligence boom may be resembling the dot-com bubble, with AI companies now deeply embedded in the economy.
  • The internal document, reported by NOTUS, cautions that weaker financial conditions or slower growth could trigger systemic spillovers if the AI sector turns lower.
  • The warning highlights extreme valuations and heavy capital expenditure in AI that have yet to be matched by durable profits.

The U.S. Treasury has circulated an internal draft report warning that the rapid expansion of artificial intelligence could mirror the dot-com bubble of the late 1990s, according to people familiar with the matter. The document stresses that AI companies have become so deeply embedded across the economy that any downturn in the sector could have far-reaching consequences for financial stability.

"If funding conditions tighten or growth disappoints, the current valuations and capital intensity raise the risk of a correction that could spill over into credit markets and broader investment," one person briefed on the report's findings said. The Treasury declined to comment on the draft, which has not been made public.

The warning comes amid a surge in AI-related spending by the largest technology companies. Industry giants are committing tens of billions of dollars to data centers, chips, and cloud infrastructure, betting that generative AI will transform industries. But the draft report cites concerns that profitability and cash generation have not kept pace with the investment, potentially inflating a bubble.

Analysts have drawn parallels to the dot-com era, when excessive spending on internet infrastructure ultimately led to a sharp market correction. While AI adoption could indeed boost productivity over the long term, the timing and magnitude of returns remain highly uncertain. A sudden pullback in AI investment or a wave of disappointing earnings could tighten financial conditions, hitting lending and economic growth.

The report also flags the interconnectedness of AI companies with the broader financial system, noting that many hold significant debt and rely on equity markets for funding. "The potential for a synchronized downturn is higher than in previous tech cycles," a second person familiar with the analysis said. "AI is not a standalone sector—it's woven into supply chains, cloud services, and enterprise software."

Policy makers have taken note. The Treasury draft adds to a growing chorus of regulatory and central-bank voices calling for caution. The Federal Reserve has previously flagged asset valuations in tech as elevated, while European officials have urged closer monitoring of non-bank lenders exposed to the sector.

For now, the AI rally continues, with major indexes near record highs. But behind the optimism, the Treasury's draft report serves as a stark reminder that booms can breed busts—and that this time, the fallout might not be contained.