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Fed Survey Finds Increased Worries About AI’s Impact on Financial Stability

By  |  May 11, 2026
AI, funding, investments

Artificial intelligence may be exciting private-equity investors and investment bankers, but other financial-market participants increasingly see it as a risk to overall financial stability. According to the Federal Reserve’s latest Financial Stability Report, 50% of surveyed participants cited AI as a salient risk to the financial system, up from 30% in the fall of 2025. Private credit saw an even bigger jump, from 22% to 50%, due in part to AI’s threat to software companies, which make up a significant share of private credit borrowers.

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    AI’s growing prominence in the survey reflects its wide-ranging impact on the financial system, affecting asset valuations, borrowing levels, labor markets, and credit conditions.

    “AI-related risks were in focus as well, particularly concerns around equity valuations, debt-financed capital spending, and risks to the labor market,” the report said.

    The only threats cited more frequently by survey participants were exogenous factors, including the current oil shock, cited by 70% of participants versus not being a factor in the fall 2025 survey, and broader general geopolitical risks, which jumped from 48 to 75%.

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    AI-linked tech stocks currently comprise 45% of the S&P 500’s total market capitalization, according to BeInCrypto, but account for nearly all of the index’s growth in 2026. According to Google Finance, the S&P actually fell by 1.8% through the first five months of the year when AI-linked stocks are removed from the calculation.

    Related: In an About-Face, Trump Administration Considers Vetting New AI Models

    Respondents to the Fed survey, however, connected AI’s impact with risk from elevated equity prices beyond tech companies, driven by AI optimism, which could be destabilizing if profit expectations weaken. They also saw it as a driving factor of increased risk from leveraged capital spending, driven by rapid growth in data centers and other AI-related infrastructure.

    “Respondents raised several risks related to AI, including equity valuations; that capital expenditures are increasingly funded by debt, creating leverage in the system; and that widespread adoption of AI may contribute to labor market weakness,” the report said.

    Other risk factors cited in the report include cyberattacks and other cyber events that could disrupt market functioning, again driven in part by AI. “Recent advances in the ability of large language models and agentic AI systems to detect and exploit vulnerabilities have introduced new challenges in safeguarding system security for financial institutions, infrastructures, and third-party service providers,” the report stated. “Shocks caused by cyber events may propagate through complex interdependencies among financial institutions and market infrastructures as well as service providers and can be further amplified by existing financial vulnerabilities.”

    The possibility of protracted conflict in the Middle East was another risk factor discussed in the report. “A prolonged conflict, particularly if accompanied by persistent commodity shortages and impaired supply chains, could lead to upward pressure on global inflation and an economic slowdown in the U.S. and abroad, including some foreign economies where elevated public debt levels may limit governments’ ability to respond to weaker growth,” the report said. “In addition, a downturn in sentiment for investors, businesses, and consumers could prompt a broader pullback from riskier assets or those with elevated valuations, increasing volatility in financial markets.”

    Taken together, the survey results portray AI as a growing source of financial market participants’ worries over asset valuations, debt buildup and risk, and market disruptions.