Last updated: 27 October 2026 · By Analyst, Platizio Global

Whether the AI bubble is bursting is an open question, and this post makes no prediction. What happened in October 2026 is that US stocks tied to artificial intelligence (AI) sold off sharply, more than the wider market, and the bubble debate grew louder. Below: what was reported to be behind the fall, the arguments on each side, and the practical points for an Indian resident who holds US stocks or is thinking about them.

Key takeaways

  • Reported triggers: debt-funded data centres, AI spending running ahead of cash, a 10-year US Treasury yield of 5.31% on 5 October (its highest since 2002), the Fed’s rate rise on 16 September and 3.7% US inflation.
  • The evidence cuts both ways: Oracle’s capital spending exceeded its revenue over 12 months, yet the S&P 500’s forward price-to-earnings ratio (19.0, FactSet, 16 October) was below its 10-year average.
  • Many Indian investors already hold the AI trade through broad US index funds, so adding AI stocks concentrates the same bet.
  • A rupee that strengthens against the dollar makes a fall in US shares larger in rupees; a weaker rupee does the reverse.

Why are AI stocks falling? Reported triggers

  • Debt-funded data centres. CoreWeave, which rents out AI computing capacity, had US$35.07 billion of debt on 30 June 2026 (10-Q). In mid-October, worries about that debt spread to other data-centre builders, including Oracle, which “has borrowed heavily” for data centres (SiliconANGLE).
  • Spending ahead of cash. Meta’s third-quarter capital expenditure (capex), including principal payments on finance leases, was US$34.91 billion, 54.0% of revenue, and its free cash flow was −US$2.12 billion (results, 21 October).
  • Rates and inflation. The 10-year US Treasury yield reached 5.31% on 5 October, its highest since May 2002 (US Treasury); higher yields lower the value of profits expected in the future. US consumer prices rose 3.7% in the year to September (Bureau of Labor Statistics), and the Fed raised its target range to 3.75%–4.00% on 16 September.

Is it a bubble? The numbers, and who says what

  • Spending. Oracle’s capex (purchases of property and equipment, excluding finance leases) was 105.4% of its revenue in the 12 months to 31 August 2026 (SEC filings).
  • Valuation. FactSet (16 October) put the S&P 500 at 19.0 times forecast earnings for the next 12 months, below its 10-year average (19.1), but at 26.0 times the past year’s earnings, above it (23.6).
  • IMF (Global Financial Stability Report, 13 October): “Weaker or less durable investment and profitability in artificial intelligence could lead to a correction in AI-related asset prices”, amplified, it said, by rising leverage and concentrated exposures. Its briefing added that, unlike in the dot-com era, price-to-earnings ratios have fallen as earnings beat forecasts, a cycle that may be hard to sustain.
  • Yardeni Research (21 October): “The meter says there’s a bubble, but it’s not about to burst” (Investing.com).

Past sell-offs in technology stocks have differed widely in how deep they went and how long they lasted, and none is a guide to this one. We take no view on whether AI stocks are in a bubble.

What it means for Indian investors in US stocks

  • You may already own the AI trade. The Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) were 34.54% of the SPY S&P 500 fund on 21 October (State Street). Adding AI stocks or a semiconductor ETF adds to the same bet.
  • The rupee can soften or deepen a fall. Your US shares are priced in dollars and your goals are in rupees. If the rupee strengthens against the dollar while US shares fall, the loss is larger in rupees than in dollars; if it weakens, the loss is smaller (see currency risk).
  • Tax on losses. Losses on US shares can be set off only against capital gains, not salary (Income-tax Act, 2025, sections 109 and 111): short-term losses against any capital gain, long-term losses (shares held over 24 months) only against long-term gains, carried forward for eight tax years if you file on time (tax guide). Check with a chartered accountant.
Sources11
  1. US Department of the Treasury: Daily Treasury Par Yield Curve Rates (2002–2026) — https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2026
  2. Federal Reserve: Federal Reserve issues FOMC statement (16 September 2026) — https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm
  3. US Bureau of Labor Statistics: Consumer Price Index, September 2026 (CPI-U, all items) — https://www.bls.gov/cpi/
  4. Meta Platforms: Third quarter 2026 results (Form 8-K exhibit 99.1, 21 October 2026) — https://www.sec.gov/Archives/edgar/data/1326801/000162828026066700/meta-09302026xexhibit991.htm
  5. CoreWeave: Form 10-Q for the quarter ended 30 June 2026 (filed 12 August 2026) — https://www.sec.gov/Archives/edgar/data/1769628/000176962826000366/crwv-20260630.htm
  6. Oracle: Form 10-Q for the quarter ended 31 August 2026 — https://www.sec.gov/Archives/edgar/data/1341439/000119312526389274/orcl-20260831.htm
  7. International Monetary Fund: Global Financial Stability Report, October 2026, and press briefing transcript (13 October 2026) — https://www.imf.org/en/publications/gfsr/issues/2026/10/13/global-financial-stability-report-october-2026
  8. State Street Global Advisors: SPY daily holdings (as of 21 October 2026) — https://www.ssga.com/us/en/intermediary/library-content/products/fund-data/etfs/us/holdings-daily-us-en-spy.xlsx
  9. FactSet: Earnings Insight (John Butters, 16 October 2026) — https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_101626.pdf
  10. Investing.com: AI bubble about to burst? Not yet, Yardeni says (21 October 2026) — https://in.investing.com/news/stock-market-news/ai-bubble-about-to-burst-not-yet-yardeni-says-5644920
  11. SiliconANGLE: Shares of Oracle, neoclouds drop on CoreWeave debt concerns (Maria Deutscher, 14 October 2026) — https://siliconangle.com/2026/10/14/shares-of-oracle-neoclouds-drop-on-coreweave-debt-concerns/

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