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By Dawn Kopecki
NEW YORK (Reuters) -The AI roar is bringing caller risks to the fiscal markets arsenic investors flock to tech stocks and executives wage steep premiums to bargain AI exertion they can't physique in-house, warned two apical concern executives.
AI has go the “number 1 taxable of conversation” for some investors and firm executives, Matthew Danzig, managing manager astatine concern slope Lazard, said connected a sheet treatment with Citadel Chief Risk Officer Joanna Welsh astatine Reuters Momentum AI 2026 league successful New York this week. Companies are scrambling to articulate an AI strategy, often acquiring capabilities oregon proprietary datasets to enactment competitive, the tech banker said.
“Every institution that’s a imaginable people is figuring retired their AI angle,” helium said. Valuations are being driven to historically precocious levels arsenic investors stake connected imaginable profits alternatively of existent fundamentals, helium said. "It's markets consenting to wage for the future."
NVIDIA'S POST-EARNINGS SURGE
The manufacture volition request roughly $7 trillion successful superior by 2030 to money its maturation – and that's conscionable for information centers, according to McKinsey & Co. Investors, however, person mostly brushed speech concerns astir the expanding magnitude of leverage successful the strategy and the lack of gross to enactment each the indebtedness needed to concern that growth.
Chipmaker Nvidia's shares surged by much than 5% successful premarket trading Thursday aft the $4.5 trillion institution reported grounds gross and a 65% year-over-year surge successful nett income for its fiscal 3rd quarter.
Beneath the frenzy, however, structural vulnerabilities lurk and cracks are starting to show.
Welsh said Citadel, which has $71 cardinal successful assets nether management, is prepared for potential drawdowns astatine immoderate fixed time. The hedge fund's hazard models amusement that modern markets amplify shocks.
“Markets are conscionable faster,” she said. "These volatility spikes and pulses, they deed harder, they slice faster, they repetition much often."
RISKS ARE 'STARTING TO CONVERGE'
Risks successful recognition markets are “starting to converge and stack” with the AI boom, Welsh said, pointing to a emergence successful high-quality firm issuance of 30- and 40-year bonds connected assets with astir four-year depreciation cycles. That means companies are paying disconnected debt for a agelong clip aft the plus has perchance go obsolete. A mismatch between the indebtedness maturity and the depreciation rhythm is besides a marker of accrued hazard because it strains currency flow.
At the little extremity of firm credit, issuers and investors person "equal enthusiasm" for zero-coupon convertible bonds issued by little creditworthy tech firms, she said. Zero-coupon convertible bonds are considered higher risk investments that springiness investors banal if the institution does good and precedence outgo with bondholders successful bankruptcy, but they don't wage a coupon.
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