Zoe Callow The European Central Bank has said the quiet part out loud: if the AI trade blows up, it could take the eurozone's financial system down with it, not just Wall Street's, according to the Telegraph.
It's not that eurozone banks are stuffed with AI loans — it's concentration. A handful of US giants known as the Magnificent Seven have grown so dominant that European money is riding on them. European households hold roughly €440bn in US tech stocks, mostly through index-tracking funds, and pension funds and insurers hold the same names too, per reporting on the ECB's findings.
US valuations are near historic highs on the cyclically adjusted price-to-earnings ratio, and the ECB posed the question: a rational bet on transformative technology, or a rerun of the dot-com bubble? Its own economists said a correction "is likely," per AOL.
The ECB doesn't regulate American tech stocks or the AI industry. Its job is watching the eurozone's financial system for stress, twice a year, through its Financial Stability Review, per ara.cat. It flagged that "productivity gains and expected future profits from AI investments remain highly uncertain and could disappoint," per ara.cat.
The channel it's watching hardest is private credit — the fast-growing, lightly regulated way AI data centres get financed outside the banking system. The ECB said this "should be closely monitored" and could become "a material source of credit risk and a potential amplifier of stress for financial institutions in the euro area," per ara.cat. Nvidia's $100bn investment in an OpenAI data centre in Ohio, backed by credit facilities worth up to $105bn, is the kind of interlinked deal fuelling "circular financing" worries, per AOL.
The ECB's next Financial Stability Review lands this autumn. Whether the exposure figures have grown, or the private-credit warning turns into an actual shock, is the thing to watch before then.
