Risks associated with the artificial intelligence sector have become the most frequently cited concern for financial stability, according to a semiannual report released by the Federal Reserve on Friday. The central bank's Financial Stability Report found that both the potential dangers of the technology itself and the rapid pace of investment in the sector were identified as the preeminent worry among survey respondents.
Eighty-seven percent of contacts surveyed cited AI as a salient risk to the financial system, up sharply from just 50% in the May edition of the survey. Respondents pointed to concerns about cyberattacks, risks linked to complex forms of AI-related financing, and the possibility that an AI earnings slowdown could trigger a broad market correction.
Other top concerns cited in the survey also carried significant AI implications. A broad correction in risk assets was the second most-cited worry, flagged by 52% of respondents, while cyberattacks specifically were mentioned by 43%. Forty-eight percent of those surveyed expressed concern about higher long-term interest rates, and 43% cited fiscal debt sustainability as a worry.
The survey was conducted in September and October, meaning respondents weighed in before the latest turmoil at chipmaker Nvidia, where CEO Jensen Huang stepped down on Thursday following revelations of extramarital affairs, including one involving a Chinese businesswoman whom the New York Times has reported is under suspicion as a Chinese spy. The survey also preceded the results of recent midterm elections in which the American public's rising concerns about AI were a central issue.
The increased focus on AI was underpinned by the report itself, as the Fed devoted a substantial portion of the document to examining the rapid increase in debt issuance tied to data centers and other advanced computing infrastructure. The report found that advanced computing-related debt issuance had surged to $680 billion by October 2026, already a fivefold increase on debt issued in all of 2023. Such borrowing now accounts for nearly a third of all nonfinancial investment-grade corporate debt issuance, up from less than 6% three years ago.
The Fed noted in its report that the rapid influx of debt issuance and investment in AI-related infrastructure could be compared to the broadband telecom investment cycle of the late 1990s, although the central bank said it is possible the current investment cycle may soon surpass that era.
The central bank also focused on the complex financing arrangements underpinning some of this investment, noting that arrangements such as long-term contracts, leases, and guarantees allow hyperscalers and other large firms to support financing of such projects by smaller third parties, while graphics card designers and hyperscalers often further contribute to investments via equity. Data collected by the Fed found that debt, guarantees, and not-yet-commenced leases on this infrastructure could exceed $3 trillion.
The Fed said such circular financing dynamics could allow the largest firms to absorb losses in the event of a downturn, minimizing the impact on the broader financial system. However, it could also mean that those firms' exposure to such a downturn could be substantially larger than indicated by their on-balance-sheet liabilities.
The complex interlinkages among firms engaged in the data center buildout, public credit markets, private lenders, and special purpose financing vehicles create vulnerabilities that necessitate close monitoring, the report stated.
Elsewhere in the financial system, the Fed found that asset valuations across a range of classes remained high, due in part to investor enthusiasm about AI. The report noted that investment in the AI sector has been a significant driver of US economic growth this year, and an unexpected downturn in corporate earnings could prompt a market decline, tighter credit, and reduced investment, all of which would weigh on the economy. Such a downturn could also be exacerbated by relatively high levels of leverage in some portions of the financial sector. The Fed noted that leverage among hedge funds, particularly the largest firms, remains at the highest levels recorded since it began gathering such data in 2013.