What's up: Stocks fell Tuesday after a report raised concerns about AI profitability; the EU looks to get off the AI sidelines.

Good morning. The need for money to build out the infrastructure for AI is pushing the limits of traditional tech funding sources. Many tech companies are private and can’t tap the public markets. And ever-larger funding rounds in venture capital can’t meet all of those needs, either.

AI companies themselves have been filling that need at times. Nvidia will invest up to $100 billion in OpenAI.

There are concerns about such ‘circular’ deals. “If we get to a point a year from now where we had an AI bubble and it popped, this deal might be one of the early breadcrumbs,” Brian Colello, an analyst with Morningstar, told Bloomberg. “If things go bad, circular relationships might be at play.”

AI and data center construction is drawing on massive debt, too. “The financing behind the AI build-out is complex. Debt is layered on at nearly every level,” the WSJ reported. For example, the WSJ said, “Interest rates start above 8% for CoreWeave’s financing on its deals with top tech companies including Microsoft, and far more for upstarts. In all, CoreWeave has around $15 billion of debt.”

There are growing concerns about how long the circle of AI capital will remain unbroken, and what happens if and when it stops. It doesn't mean that the fundamental demand for AI is not there, but it will take years for that demand to turn into sufficient revenue. And the fervor of that demand could be affected by broader concerns about the health of the ecosystem.

Stocks fell Tuesday after report raised concerns about AI profitability

Oracle shares, which have surged this year as the company announced huge new contracts, fell Tuesday as much as 7.1% before paring losses and ending the day down 2.5%. The activity followed a report by the Information showing that the company was generating relatively small profits from renting Nvidia chips to OpenAI and other customers.

Alphabet lost 1.9% and CoreWeave dropped 3.8%. The decline in tech shares helped drag the S&P 500 down 0.4% a day after it had settled at its 32nd record high of the year.

Other firms saw shares rise after recent AI deals.

Advanced Micro Devices gained another 3.8% after climbing 24% Monday when it announced a partnership with OpenAI that would involve the sale of tens of thousands of its chips.

Dell Technologies said Tuesday it now expects annual revenue to rise between 7% and 9% over the long term, up from a previous target of 3% to 4%. The computer and software maker gained 3.51%.

And IBM early Tuesday saw its stock up nearly 4% on news of its partnership with Anthropic, reported by the WSJ Leadership Institute's Belle Lin. 

AI dominates corporate debt. The amount of debt linked to artificial intelligence has hit $1.2 trillion, Bloomberg reports, citing a JPMorgan Chase analyst note released Monday. 

EU looks to get off the AI sidelines

The European Union is advancing two new strategies aimed at speeding up the use of AI in key European industries and boosting AI-driven research, the WSJ reports.

Made in Europe. The EU aims to mobilize around $1.17 billion to fund initiatives such as AI-powered advanced screening centers for healthcare and the development of frontier models and agentic AI that could be used in sectors such as manufacturing and pharmaceuticals.

The move comes amid concerns within the bloc that Europe’s tech sector is lagging behind that of China and the U.S., and that the EU is too dependent on foreign tech.

AI's next stop: Robotics

Japan’s SoftBank Group agreed to purchase ABB’s robotics business in a deal that values it at $5.38 billion, furthering the investment company’s push into the business of artificial intelligence, WSJ reports.

It looks like Tesla won’t be able to hit promised production goals tied to its Optimus program, owing to technical issues, the Information reports. Chief Executive Elon Musk said in July that the EV company aimed to scale production of its humanoid robots to 1 million units a year within the next five years. 

A host of alternative jobs data from Wall Street are pointing in the same direction: The U.S. labor market is losing steam. (WSJ)

Susumu Kitagawa, Richard Robson and Omar M. Yaghi were awarded the Nobel Prize in Chemistry for developing a new form of molecular architecture that can be used to harvest water from desert air, capture carbon dioxide, store toxic gases or catalyze chemical reactions. (WSJ)

Staffing shortages at federal air-traffic control facilities across the country have prompted authorities to slow the number of flights that can take off and land at certain airports. (WSJ)

Local and state politicians railed Tuesday against the Trump administration’s federalization of the National Guard in Illinois as hundreds of guardsmen gathered and protesters vowed to continue to challenge their presence. (WSJ)

The WSJ CIO Journal Team is Steven Rosenbush, Isabelle Bousquette and Belle Lin.

The editor, Tom Loftus, can be reached at thomas.loftus@wsj.com.