Corporate governance standards at the largest technology companies have weakened just as valuations reach levels last seen during the dot-com bubble, raising the risk that a market correction could be more severe than the underlying fundamentals warrant.
Corporate governance standards at the largest technology companies have weakened just as valuations reach levels last seen during the dot-com bubble, raising the risk that a market correction could be more severe than the underlying fundamentals warrant.
"The governance structures in these companies are adolescent at best, ill-equipped to handle their rapid rate of revenue growth, their evolving business models, and their swiftly changing capital structures," said Mike O'Sullivan, author of "The Levelling" and a former postgraduate researcher in corporate finance.
The S&P 500's Shiller CAPE ratio has exceeded its dot-com peak only once in the index's 69-year history — in 2000, before a 77% decline. Nvidia is now worth $5 trillion, Samsung has crossed the $1 trillion mark, and Anthropic and SpaceX have each raised capital at valuations approaching $1 trillion. About 40% of the value of the world's 1,680 unicorns comes from AI firms, according to PitchBook data.
The alignment of executive pay with outcomes, the activeness of boards, and oversight standards set by the Securities and Exchange Commission and the Department of Justice are all waning, O'Sullivan wrote. When the artificial intelligence capital expenditure boom slows, companies with weak governance could face sharper valuation corrections than their better-governed peers.
The concentration of voting rights among founders and early venture investors, combined with heavy share-based compensation and incorporation in regulatory havens, has created a governance gap that is particularly acute among AI companies. Many of these firms are led by dominant founders whose incentive structures are skewed toward growth at the expense of oversight, O'Sullivan noted.
The problem is compounded by the financial interconnections between technology companies. Microsoft has reported income from its investments in OpenAI and Mistral, creating a web of cross-ownership that links the outcomes of multiple firms. France's Mistral, a three-year-old AI company promoted and financially backed by the Macron administration, exemplifies the growing role of governments as shareholders in young technology firms.
Governance Under Political Pressure
The Trump administration has added a new dimension to the governance challenge. Its July 2025 "Preventing Woke AI" executive order labeled basic ethics protections as ideological impositions, making them politically costly to maintain. When Anthropic refused to remove safeguards prohibiting domestic surveillance and autonomous weapons from products supplied to the Pentagon, the administration declared the company a supply chain risk and shifted the contract to OpenAI within hours.
The Brennan Center, a legal policy and advocacy organization, has documented how AI ethics protections are being redefined through contract negotiations, with the government using terms such as "biased" to disqualify companies that maintain civil rights protections from competing for federal contracts.
The Passive Investing Risk
The rapid inclusion of mega-cap IPOs into major stock indexes could amplify the risk. Nasdaq and FTSE Russell have already changed rules to allow faster inclusion of mega-cap IPOs, and S&P Dow Jones Indices is considering similar changes. Bloomberg estimates that passive funds could be forced to absorb nearly $20 billion of SpaceX stock if the S&P adopts a fast-track approach.
AI technology companies already account for nearly half of the S&P 500's market value. The combined valuation of SpaceX, OpenAI, and Anthropic has surged from about $760 billion a year ago to $3.5 trillion today, according to estimates cited by former Lehman Brothers trader Larry McDonald.
O'Sullivan, whose doctoral research found that corporate governance mechanisms tend to complement and balance each other to drive company performance, said the current environment mirrors the late 1990s — when strong stock performance masked governance weaknesses that later contributed to the dot-com crash and the Enron scandal.
"Once the AI capital expenditure boom slows, the tide will go out," he wrote. "Many will lose their capital and will wonder if they should have paid more attention to corporate governance."
This article is for informational purposes only and does not constitute investment advice.
