Between 1861 and 1872, railroad stocks in the United States rose approximately threefold, and railroad construction reached about 37,000 miles. However, excessive capital expenditure coupled with a credit crunch ultimately triggered the Panic of 1873, leading to the bankruptcy of the Jay Cook Company, followed by the collapse of 115 other railroad companies within the next 12 months.
From 1877 to 1881, railroad stocks rose again by about 2.5 times, peaking in 1881 along with the overall US stock market. At that time, railroad stocks accounted for as much as 63% of the US stock market. Subsequently, overinvestment and deflation in freight prices led to a sharp contraction in railroad construction. Industry revenue, profits, and financing capabilities deteriorated simultaneously. By 1882, approximately 42% of railroad companies had gone bankrupt, and the credit panic spread further to Europe, ultimately culminating in the prolonged economic recession in the United States from 1882 to 1885. The current AI investment boom exhibits similar characteristics. Global hyperscale cloud service providers' capital expenditures are projected to reach $3.5 trillion to $4 trillion by 2027, equivalent to 12% to 14% of US GDP. While this investment intensity is still lower than the peaks of railroad construction in the 1870s and internet investment in the late 1990s, the concentration of the semiconductor industry in the stock market is approaching historical extremes.
Historical experience shows that when corporate revenue and profits cannot sustainably support capital expenditure expansion, credit contraction can quickly end an investment boom. Unlike the historical railroad bubble, current US long-term Treasury yields remain high, and the financing environment is more severe. The peaks in railroad stock prices in 1873 and 1881 were both accompanied by major credit events, sharp liquidity contractions, and capital outflows triggered by geopolitical factors. The current AI investment cycle also faces potential risks from financing costs, profit realization capabilities, and changes in market liquidity.
