AI Boom Elevates Financial Market Risks, Analysts Caution
NEW YORK, Nov 23 (Reuters) — The burgeoning artificial intelligence sector is instigating unprecedented risks within financial markets, as investors increasingly gravitate towards tech stocks and executives expend considerable capital to acquire AI technology that they cannot develop internally, cautioned two prominent finance leaders.
AI has ascended to the “preeminent topic of dialogue” among both investors and corporate executives, asserted Matthew Danzig, managing director at Lazard, during a panel discussion with Citadel’s Chief Risk Officer, Joanna Welsh, at the Reuters Momentum AI 2025 conference in New York this week.
Companies are in a relentless race to delineate an AI strategy, frequently resorting to acquisitions of capabilities or proprietary datasets in order to maintain competitive relevance, Danzig noted.
“Every entity poised for acquisition is diligently crafting its AI narrative,” he remarked. As a consequence, valuations are being propelled to unprecedented heights as investors speculate on prospective profits rather than grounding their analyses in present fundamentals. “Markets are eager to pay for future potential.”
According to McKinsey & Co., the industry will necessitate approximately $7 trillion in capital by 2030 merely to sustain data center growth. Notably, investors seem largely unfazed by escalating leverage and the deficiency of revenue to substantiate the extensive debts incurred to finance this expansion.
Shares of the semiconductor manufacturer Nvidia—whose stock surged after the $4.5 trillion company announced record revenues alongside a 65 percent year-over-year increase in net income for its fiscal third quarter—experienced a downturn on Thursday.
The shares fell by 2.2 percent, landing at $182.46 during afternoon trading, thereby dragging down other technology stocks as apprehensions surrounding the potential emergence of an AI bubble resurfaced.
Amid the fervor, latent structural vulnerabilities persist, with cracks becoming increasingly visible.
Welsh indicated that Citadel, managing $71 billion in assets, is poised for any prospective market drawdowns. The hedge fund’s risk assessment models suggest that contemporary markets magnify shocks.
“Markets operate at an accelerated pace,” she stated. “These spikes in volatility are not only more intense and fleeting, but they also recur with greater frequency.”
Welsh further noted that risks in the credit markets are beginning to align and converge with the AI boom, highlighting a rise in high-quality corporate bond issuances spanning 30 to 40 years linked to assets exhibiting depreciation cycles of approximately four years.
This scenario implies that companies may be repaying debts long after the underlying assets have potentially become antiquated.
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