The ECB warns of the AI bubble: "Profits could disappoint"

BarcelonaThe European Central Bank (ECB) has once again warned of the financial dangers of the artificial intelligence (AI) sector, which is growing very rapidly, especially in the United States. In a report, the European monetary institution warns that large AI multinationals may be overvalued and could cause problems in the eurozone's financial sector.

In its financial stability report, published semi-annually, the European monetary institution points out the dangers of the AI industry, especially regarding how it is financed. The ECB warns, in particular, that part of the financing that is driving the growth of American AI companies comes mainly from what is known as private credit (private credit, in English), financial companies (mainly from the US) that operate like banks, as they lend to other companies but do not have a banking license. "Their possible role in AI-related financing should be closely monitored," says the ECB's report on the activity of private credit funds. In fact, this report links two of the main concerns raised by the US economy, both within and outside the country: AI and private credit.

For over a year, AI companies have been the main drivers of economic activity in the US, to the point that without these companies and the massive investments they make – in, for example, data centers – the American economy would not be growing, or would even be in recession. This has led to a rise in voices saying that it is actually a sector that is absorbing the bulk of the country's savings and investment, but at the same time creating a speculative bubble

that, if it were to burst, would have very negative consequences for the US as a whole and for the global economy. Some experts recall the speculative bubble of the late 90s and early 2000s with internet companies, which was then a new technology, and which eventually burst, causing a significant crisis in the US.

In this regard, critics of the AI industry point to circular agreements between multinationals in the sector (the same group of large companies sign future purchase and sale agreements for products) as proof that it is a sector with companies overvalued by hypothetical future results –on paper, the fruit of technological development–, disproportionate or even fictitious. The ECB, in this regard, joins the caution regarding AI growth: "Productivity gains and expected future profits from AI investments remain highly uncertain and could disappoint," the document warns, in the usual language of central banks.

Little European exposure to private credit

The second concern is the private credit sector. Recently, several financial entities have had to limit investor withdrawals from their private credit funds, which has multiplied doubts about the investments made by these types of companies, which in practice operate as banks.

Private credit is less important than AI from a European perspective, at least a priori, according to the ECB document, and even more so when compared to the subprime mortgage market, the low-quality loans that were at the root of the 2008 financial crisis in the US. "The US private credit market was a total of about 1.4 trillion dollars at the end of 2024, representing 4.7% of US GDP [gross domestic product, the indicator that measures the size of an economy]," the ECB recalls in its study. This figure is very similar to the 1.5 trillion dollars that the subprime mortgage market represented in 2006, but because the economy has grown in these twenty years, the weight of subprimes then was 10.9% of GDP. In other words, a hypothetical collapse of private credit institutions would represent a direct impact on the North American economy, approximately half of what the collapse of the mortgage market represented two decades ago.

Furthermore, "unlike subprime loans, private credit debt is low and most of the financing is long-term and not subject to panic risks," the ECB points out about this sector. Seen from the other side of the Atlantic, it should be added that today the direct interests of the European financial sector in North American private credit are much smaller than in the time of subprime mortgages. "The exposure of eurozone banks to private credit is currently also significantly smaller than what was previously held in the North American subprime markets," the report states.

The risk of a convergence

Despite this, according to the ECB, we must be vigilant. "Private credit could, however, become an important source of financing for AI data centers and AI-related companies." It is at this point that the ECB highlights the risk that AI and private credit, two of the possible dark spots in the US economy right now, end up converging, and make two problems that currently seem independent much larger. If this were to happen, the risks for European banking would grow: "In this case, the private credit markets and, therefore, the exposure of the euro area, could grow much more," says the document from the community body.

According to the ECB, if European financial groups' exposure to the AI sector increased and, at the same time, the final benefits derived from AI were lower than expected, "private credit could become more of a material source of credit risk and a potential amplifier of stress for financial institutions in the euro area."