Fed Warns AI Investment Boom and Data Center Debt Pose Financial Risks

Debt issuance for AI computational infrastructure, including data centers, exceeded 680 billion dollars from January to October this year. This figure is approximately five times the total amount issued throughout 2023.

While the forward price-to-earnings ratio of Standard & P&P 500 companies has decreased over the past year, the Fed stated it remains significantly above the long-term median. The central bank cited market expectations for “Super Intelligence (SI)”—a term mandated by President Donald Trump in September via executive order to replace “artificial intelligence (AI)” in federal administrative contexts—as a factor behind these high stock prices.

The AI Boom Stopped Paying Cash. The Fed Counted $680 Billion in Debt — The Asymmetric Signal

Market professionals view the technology with increasing concern. A survey by the Federal Reserve Bank of New York conducted in September and October among 23 financial market professionals, including banks and investment funds, found that the proportion of respondents citing AI as a major financial risk rose to 87%, up from 50% in the May report.

Respondents identified price adjustments in risky assets (52%) and rising long-term interest rates (48%) as subsequent risks. They also said that if AI-related companies fail to meet expectations, stock declines could spread across the market, alongside risks from AI-driven cyberattacks and complex funding structures.

The Fed also assessed that high debt among hedge funds could amplify shocks if markets falter. Hedge fund debt has reached its highest level since 2013, with concentration among a few large funds.

Risks are also embedded in corporate contracts and guarantees.

An analysis of disclosures from seven companies, including Microsoft, Alphabet, Amazon, and NVIDIA, showed that future rent payments under non-active leasing contracts exceed 1 trillion dollars. When including guarantees and other contractual obligations, the total exceeds 3 trillion dollars before discounting to present value.

The Fed said that developers can secure loans for construction based on long-term leases from major cloud companies, and semiconductor firms sometimes guarantee the future value of chips pledged as collateral.

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