AI Surge Sparks Financial Market Risks, Experts Warn
NEW YORK: The burgeoning AI sector is engendering new challenges within financial markets, as investors gravitate toward technology stocks and executives expend considerable resources to acquire AI capabilities they are unable to develop internally, cautioned two prominent finance figures.
Artificial intelligence has emerged as the “predominant topic of discourse” among both investors and corporate leaders, asserted Matthew Danzig, managing director at the investment firm Lazard, during a panel discussion with Joanna Welsh, Chief Risk Officer of Citadel, at the Reuters Momentum AI 2026 conference held this week in New York.
Companies are in a fervent race to elucidate an effective AI strategy, frequently acquiring essential capabilities or proprietary datasets to maintain their competitive edge, Danzig noted.
“Every entity with acquisition potential is strategizing its AI narrative,” he remarked. Valuations are being propelled to unprecedented heights as investors speculate on prospective profits rather than relying on current fundamentals. “This is a market that is prepared to invest for the future,” he added.
NVIDIA’S POST-EARNINGS SPIKE
The industry is projected to necessitate approximately $7 trillion in capital by 2030 to sustain its growth—this estimation pertains solely to data centers, according to analysis by McKinsey & Co.
Nevertheless, investors seem largely undeterred by escalating leverage in the financial system and the absence of revenue to undergird the burgeoning debt required for that expansion.
Shares of chipmaker Nvidia experienced a surge exceeding 5 percent in premarket trading on Thursday, following the announcement of record revenue and a remarkable 65 percent increase in net income year-over-year for its fiscal third quarter.
Nonetheless, beneath the surface of this excitement, structural frailties are becoming evident, with signs of distress beginning to manifest.
Welsh indicated that Citadel, which manages $71 billion in assets, is poised to contend with potential market downturns at any moment. The hedge fund’s risk models reveal that contemporary markets amplify shocks significantly.
“Markets are merely more rapid,” she articulated. “These spikes in volatility hit harder, dissipate swiftly, and recur more frequently.”
RISKS ‘BEGINNING TO CONVERGE’
Welsh remarked that risks within credit markets are “beginning to converge and accumulate” alongside the AI boom, highlighting a surge in high-quality corporate issuance of 30- and 40-year bonds tied to assets characterized by roughly four-year depreciation cycles.
This scenario suggests that corporations may be repaying debt long after these assets have potentially become obsolete. Such a disparity between debt maturity and asset depreciation cycles further exacerbates risk and stresses cash flow.
In the lower echelon of corporate credit, both issuers and investors exhibit “equal enthusiasm” for zero-coupon convertible bonds emanating from less creditworthy technology firms, she stated.
Zero-coupon convertible bonds, deemed high-risk investments, offer investors equity should the company prosper while granting priority in repayment to bondholders during bankruptcy, though they eschew periodic coupon payments.
“Zero-coupon converts are experiencing a significant issuance year, paralleling trends observed in 2001 and 2021,” she noted, alluding to prior market downturns.
“When you juxtapose that with the substantial capital influx into illiquid assets such as private credit, it becomes clear that within certain portfolios, a minor spark could trigger substantial consequences.”
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