The accelerating global AI boom is stirring deep concerns among top finance executives, who warn that overheated valuations, excessive leverage and long-term debt mismatches are creating new fault lines in the financial markets. Speaking at the Reuters Momentum AI 2025 conference in New York, Lazard managing director Matthew Danzig and Citadel Chief Risk Officer Joanna Welsh cautioned that investors and companies may be underestimating the risks building beneath the frenzy.
AI hype fuels soaring valuations
Danzig said AI has quickly become the “number one topic of conversation” for investors and corporate leaders alike. In a bid to remain competitive, companies are rushing to articulate an AI roadmap—frequently by acquiring proprietary datasets or purchasing expensive AI capabilities they cannot build internally. This acquisition heavy approach, he noted, is driving valuations to “historically high levels,” fuelled by bets on future profits rather than fundamentals. “Every company that’s a potential target is figuring out their AI angle,” he said. “It’s markets willing to pay for the future.”
A $7-trillion infrastructure bill
According to a McKinsey & Co. estimate cited during the panel, the AI industry will need nearly $7 trillion in capital by 2030—just to build data centres needed to support the next wave of growth. Yet investors have largely shrugged off concerns about the rising leverage in the system and the absence of revenue strong enough to support the debt that companies are taking on. The tension between massive investment needs and limited cash flows is emerging as a key vulnerability in the ecosystem.
Nvidia’s surge stalls as bubble fears return
The concerns resurfaced sharply in the stock market this week. Nvidia, the $4.5-trillion chipmaker and the poster child for the AI revolution, reported record third-quarter revenue and a 65% jump in net income. Despite the strong results, Nvidia’s shares dipped 2.2% to $182.46 on Thursday, triggering a broader fall in tech stocks as fears of an AI bubble regained momentum. Analysts warned that the market’s extreme sensitivity highlights a structural fragility—where even positive news can lead to volatility if expectations are too stretched.
Citadel warns of amplified shocks
Citadel’s Joanna Welsh said modern markets are structurally more vulnerable to shocks, with volatility spreading faster than before. With Citadel managing $71 billion in assets, the firm’s models indicate that shocks now “hit harder, fade faster, and repeat more often,” suggesting that high-frequency turbulence is becoming the new normal in AI-fuelled markets.
Debt risks ‘starting to converge’
Welsh highlighted a troubling trend in corporate credit markets: companies are increasingly issuing 30- and 40-year bonds to finance assets with depreciation cycles of roughly four years—especially AI servers and hardware. This mismatch means firms may still be paying off debt long after the underlying technology has become obsolete, straining future cash flows. “Risks in credit markets are starting to converge and stack,” she warned, suggesting the AI boom is amplifying these vulnerabilities.
Zero-coupon convertibles return as warning sign
In lower-quality corporate credit, Welsh noted an “equal enthusiasm” among issuers and investors for zero-coupon convertible bonds, which pay no coupon and offer investors conversion to stock if a company performs well or bondholder priority in bankruptcy. These instruments tend to resurface in overheated markets—similar spikes were seen in 2001 and 2021, both preceding sharp downturns. Combined with the massive inflows into illiquid private credit markets, the current wave of zero-coupon issuance raises the risk of what Welsh described as a potential “brush fire” in some portfolios.
Conclusion
As AI becomes both the engine of global innovation and the epicentre of speculative optimism, the warnings from top financial leaders underscore a growing consensus: the world may be heading toward an AI-driven market bubble. While the technology’s long-term potential remains undeniable, the near-term financial risks—overvaluation, leverage, and debt mismatches—are beginning to flash red. How policymakers, investors and companies respond may determine whether the AI boom stabilises into sustainable growth or veers into a painful correction.