AI Boom Sparks Financial Stability Concerns

The US Federal Reserve has formed a new task force to study the impact of artificial intelligence (AI) on financial stability, but its focus is too narrow. The Fed has shown some awareness of AI's risks, with previous discussions about cybersecurity in banking and the potential for AI-driven productivity gains.

However, the actual investment in AI data centres is massive, with outstanding debt expected to surpass mortgage debt by the end of this decade. The concern is that these debts may not be repaid on time due to uncertain revenue streams from AI technologies.

A recent estimate suggests that the US$750 billion spent on hyperscaler AI capital expenditure will need to generate around US$1.5 trillion in customer revenue over the life of the equipment just to pay for itself, let alone service debt.