French central bank governor warns of AI risks

Emmanuel Moulin, governor of the Bank of France, warned on Monday that a potential correction in the valuations of American artificial intelligence companies could affect Europe, due to the increasing reliance on debt to fund these investments.

AI investments outpace profits

Tech giants have been making significant investments in AI recently, but these investments are growing faster than the profits they generate, raising concerns about a potential bubble similar to the one seen in the internet sector during the 1990s and early 2000s.

Moulin sees AI potential but warns of risks

While Moulin expressed optimism about AI’s potential to boost productivity, he highlighted that the scale of investments, the increasing use of debt, and high profit expectations pose risks to financial stability.

Debt and profit expectations fuel concerns

Moulin noted that while initial funding for AI investments was mostly equity-based, today they are increasingly financed by debt and rely on very high profit expectations, which could be problematic if those expectations are not met.

European financial exposure to US markets

He warned that high interest rates could reduce expected returns and make it harder for companies to fund their investments, potentially lowering their valuations. Europeans hold between 15% and 20% of American shares, according to estimates, which could lead to a contagion effect in Europe if US AI valuations decline.

AI’s impact on employment raises concerns

Moulin also expressed concern about AI’s effect on employment, particularly for young people, noting that companies that have heavily integrated AI are already reducing their hiring.