Watch out for the bubble… The governor of the Banque de France warns of the risks of investments in AI

Dizzying investments financed by debt, with disproportionate profit prospects... The governor of the Bank of France, Emmanuel Moulin, warns of the scenario of a potential financial bubble around the artificial intelligence sector which would have strong repercussions in the United States, but also in Europe. Tech giants have increased dizzying investments in AI in recent months, but these seem disproportionate in relation to the profits generated. A situation which fuels the specter of the scenario experienced by the Internet in the 1990s and early 2000s.

Unrealistic profit prospects “These investments, even if they were initially financed mainly with shares, are today increasingly financed by debt and are based on very high profit prospects,” he declared during a conference in Barcelona. Companies go into debt to invest in the hope of juicy profits in return. Benefits which, today, seem disproportionate.

According to him, high interest rates could compromise expected returns and make it more difficult for companies to finance investments, with an impact on their valuations. With, in the long term, a real risk for financial stability. Europe directly impacted in the event of a crisis The director of the Banque de France also sits at the European Central Bank (ECB).

He adds that these risks were particularly strong for Europe, because Europeans own between 15% and 20% of American securities, according to estimates. “We can therefore have a contagion effect in Europe in the event of a fall in the valuations of companies linked to AI in the United States.” Optimistic about the potential of AI to increase productivity, he is however concerned about the impact of AI on employment, particularly among young people, noting that the companies which have most integrated this technology are already reducing their hiring.

Machine-translated from French