AI Bubble Risk: Banque de France Governor Warns of Contagion

Debt and high profit expectations

Speaking at a conference in Barcelona, Moulin said he was optimistic about AI's potential to raise productivity. But he stressed that the scale of spending, growing reliance on borrowing and very high profit expectations pose risks to financial stability. "These investments, even if they were initially financed rather with equity, are today increasingly financed by debt and are based on very high profit prospects," he said.

He cautioned that high interest rates could undermine expected returns and make it harder for companies to fund their investments, which would in turn weigh on their valuations.

Why Europe is exposed

Moulin, who also sits on the European Central Bank's governing body, said these risks are particularly acute for Europe because Europeans hold an estimated 15% to 20% of US securities. "We could therefore see a contagion effect in Europe if the valuations of AI-related companies in the United States fall," he said.

The governor also voiced concern about AI's impact on employment, especially for young people. He noted that the companies that have integrated the technology most deeply are already cutting back on hiring.

The remarks add a central banker's voice to the debate over whether AI spending is outrunning its returns. For European investors and savers holding US equities, they underline that a sharp repricing across the Atlantic would not stay confined to American markets.