The Federal Reserve's latest Financial Stability Report, released November 13, found that 87% of the market contacts it surveyed now name AI as a risk to the US financial system, up from 50% in the survey published in May. That makes AI the most frequently cited concern in the Fed's twice-yearly report, well ahead of a broad decline in risky asset prices at 52%.
The Fed surveyed 23 financial-market contacts in September and October. After AI and a risk-asset correction, respondents pointed to higher long-term interest rates at 48%, while cyberattacks and the sustainability of government debt were each cited by 43%.
The AI concerns break into three groups, according to the report: equity valuations that could fall if AI earnings disappoint, cyberattacks, and complex forms of AI-related financing.
Key facts
- 0187% of the 23 market contacts in the Fed's survey cited AI as a financial stability risk, up from 50% in May.
- 02A broad decline in risky assets ranked second at 52%, followed by higher long-term rates at 48%.
- 03Debt issuance tied to advanced computing passed $680 billion by October 2026, about five times the 2023 total.
- 04That borrowing is nearly one-third of investment-grade nonfinancial issuance, versus under 6% three years earlier.
- 05The Fed counts more than $3 trillion in leases not yet begun, guarantees and contracts at seven large tech firms.
Debt issuance tied to advanced computing passed $680 billion by October 2026, roughly five times the total issued across all of 2023. That borrowing now accounts for nearly one-third of all debt issued by investment-grade nonfinancial companies, compared with less than 6% three years earlier.
The Fed also looked past the balance sheet. It names Amazon, Alphabet, Broadcom, Meta, Microsoft, Nvidia and Oracle as carrying more than $3 trillion in combined commitments: over $1 trillion in leases that have not yet started and about $2 trillion in guarantees and contracts. The report says the true exposure may be substantially larger than the liabilities these companies disclose.
Those arrangements matter because of how the build-out is being financed. The Federal Reserve describes large technology firms using contracts, leases, guarantees and equity stakes to help third-party developers build data centers, which can leave the big firms exposed to larger losses than their balance sheets show. The report says the ties among data-center developers, credit markets and private lenders "create vulnerabilities that necessitate close monitoring."
The central bank compared the current wave of AI infrastructure spending and borrowing to the broadband and telecom investment cycle of the late 1990s, and said the current pace may soon surpass that era. It warned that an earnings shortfall in the sector could tighten lending conditions and weaken broader economic activity.
The report flagged leverage elsewhere in the system as well. Hedge fund leverage, concentrated among the largest funds, reached its highest level since the data series began in 2013. The Fed also described stock valuations as elevated, with the S&P 500's forward price-to-earnings ratio well above its historical median.
The survey was completed before Nvidia announced Jensen Huang's resignation as CEO on November 12 and before the results of the US midterm elections, so neither event is reflected in the respondents' answers.
Working on something we should cover, or seeing a story we missed? Send leads, documents, or feedback to hello@aichatdaily.com. For sensitive tips, see our secure tips page for Signal and PGP options.
Spotted an error? Email hello@aichatdaily.com with the URL and the issue, or read our full corrections policy.
