"If the AI Boom Slows, Global Financial Markets Could Be Shaken," Warns KKR, One of the World's Three Largest Private-Equity Firms

[Financial News]  

KKR warned that global financial markets could face severe volatility if the AI boom slows. With assets under management totaling $796 billion as of midyear, or approximately KRW 1,079 trillion, KKR is a leading global asset manager regarded, alongside Blackstone and The Carlyle Group, as one of the world's three largest private-equity firms.
According to Financial Times (FT), KKR warned in a report on September 30 local time that borrowing by technology companies had surged amid the AI boom, exposing investors to "an unusually concentrated investment cycle."
KKR expressed concern that technology companies plan to invest nearly $8 trillion in AI infrastructure by 2030, while 20% of the investment-grade bond index, where historically the safest securities are concentrated, could be exposed to AI-related risks.
It went on to explain that actual exposure to AI could be much greater because off-balance-sheet financing is increasing. If credit guarantees, leases and other future debt commitments are included, the AI sector's share of portfolios could be significantly larger.
Christopher Sheldon, co-head of KKR's credit division, said there had not been enough discussion about the potential volatility if AI growth slows, noting that it was a "multi-trillion-dollar discussion." He warned that the resulting shock to the broader market could also be substantial.
Tal Libek, a KKR managing director and co-author of the report, also warned that assets that appeared to belong to entirely different sectors—including bonds, loans, real estate and energy—could plunge together in a chain reaction if the AI bubble bursts or growth slows.
Some analysts believe AI investments will ultimately pay off, but they say most of that optimism is already priced into stock prices. There are also concerns that because companies are financing one another, the entire AI industry could collapse at once if one company fails.
These concerns are also reflected in rising yields on corporate bonds issued by AI companies. Investors who believe the risks have increased are demanding higher yields.
Sheldon advised investors to remain alert to excessive exposure and concentration risks because of the high degree of interconnection within the AI ecosystem.
According to KKR, AI-related debt currently totals approximately $600 billion, accounting for 6.3% of the U.S. non-investment-grade corporate bond market. That is exceptionally high compared with the fact that the largest share held by any single industry in that market over the past 29 years was only 2.6%.
KKR particularly expects large hyperscalers such as Amazon, Microsoft, Google, Meta Platforms, Oracle and SpaceX to be unable to raise all the funding they need even if they reach the customary 3% maximum allocation for a single issuer. Their projected capital expenditures exceed $6 trillion, but they can raise no more than $1.7 trillion in the investment-grade bond market.
KKR warned that risks across the financial markets are also growing because reliance on alternative-investment markets, including private equity and leasing, is unavoidable to fill this gap.

[email protected] Song Kyung-jae Reporter