87% of Market Participants Concerned Over Risk Amid Surge in AI Debt

The U.S. Federal Reserve warned in its semiannual Financial Stability Report that the AI investment boom has driven stock valuations above their actual worth, while debt to finance data center construction is growing rapidly, posing a new risk to the financial system. In the report released the previous day, the Fed diagnosed that optimistic expectations about the AI industry are fueling overvaluation across the stock market. It pointed out that if AI companies fail to deliver the returns they have promised, a sharp stock market decline and a credit market contraction could occur simultaneously.

In a survey the Fed conducted in September and October, 87% of respondents cited AI as a major risk to the financial system, up 37 percentage points from 50% in the May survey. Respondents also assessed weak investment returns, along with cyberattacks and complex financial transaction structures, as potential risks.

Issuance of debt related to advanced computing exceeded $680 billion through October of this year, roughly five times the annual issuance volume of 2023. When related debt, payment guarantees, and future lease commitments are combined, the total financial burden is estimated to exceed $3 trillion.

The Fed flagged the so-called circular financing structure—in which large tech companies support the financing of data center operators through long-term purchase contracts and guarantees—as a risk factor. As companies financially back one another's businesses, the actual risk burden can grow larger than the liabilities shown on their balance sheets. The level of leveraged investment by major hedge funds also reaching its highest point since statistics began in 2013 was cited as another risk.

The earnings of Korean companies such as Samsung Electronics and SK hynix are tied to global AI data center investment.