AI boom's profitability questioned as financial risks mount

Summarised from 3 outlets · 4 reports · Updated 13 Nov, 23:38 · Archive

Wall Street is increasingly concerned about whether the artificial intelligence industry can generate enough revenue to justify its current valuations and investment levels.

Wall Street has started to question the financial sustainability of the artificial intelligence boom. A Federal Reserve survey released Friday found that artificial intelligence topped respondents' list of greatest risks to the financial system, far exceeding other dangers. Among those surveyed, 87% cited AI as a salient risk to the system, up from 50% in the spring.

Respondents identified three distinct areas of concern. First, elevated equity valuations and the possibility that lower-than-expected earnings could result in a market correction. Second, cybersecurity risks from either malicious attacks by state actors or damage caused by frontier AI models themselves. Third, risks associated with complex forms of AI-related financing. The report covers the period up to 28 October.

Other leading risks were a risk asset correction, cited by 52% of respondents; higher long-term rates, mentioned by 48%; cyberattacks, cited by 43%; and fiscal debt sustainability, also mentioned by 43%. The U.S. debt stands over $40 trillion and the budget deficit is near $2 trillion.

The survey participants included market participants, economists, analysts and institutional sources. The concerns come as Wall Street is on edge over high-flying AI hyperscalers, whilst communities have raised concerns about the rapid spread of data centres used to power the technology. In recent midterm elections, some 56% of voters said data centres were of crucial or major importance in their choices.

The Economist cautions that an AI crash should be expected, though it may not necessarily constitute a financial cataclysm. The Financial Times reports that AI believers are holding the line after recent market volatility, with stock market bulls largely shrugging off concerns about concentration of risk.

How it is being reported

• AI risks are the biggest threat to the financial system, Fed survey findsThe report comes with Wall Street on edge over high-flying AI hyperscalers, while communities are on alert for the rapid spread of data centers.CNBC · 13 Nov, 21:18
• AI believers hold the line after Nvidia ructionsStock market bulls largely shrug off concerns about the concentration of riskFinancial Times · 13 Nov, 16:55
• Why you should expect an AI crashBut not necessarily a financial cataclysmThe Economist · 12 Nov, 09:54
• Can the AI boom make enough money to sustain itself?Wall Street has started to worryThe Economist · 12 Nov, 09:54

In this story: Federal Reserve · Wall Street · The Economist · Financial Times

This summary was written by AI from the headlines and standfirsts above, and states as fact only what at least two outlets report. How we use AI · Report a problem · Corrections log