Wall Street banks weigh AI financing boom against mounting risks

Executives at the largest US banks spent this week weighing the promise of an unprecedented AI infrastructure boom against questions about returns, financing risk and new security threats. Goldman Sachs CEO David Solomon told analysts the bank is proud of its position in the AI investment cycle but that nobody knows how demand for capital and computing power will evolve as the ecosystem matures, adding that the uncertainty reinforces the need for vigilance over what the bank finances.

Citigroup CEO Jane Fraser was more bullish, saying she sees no slowdown in investment across the AI ecosystem and that there is simply not enough compute. The scale of the buildout is vast: Big Tech has committed billions to data centers, the backbone of the capacity needed to train and run generative AI models. For Wall Street, that spending represents a chance to finance one of the biggest investment cycles in decades.

Bank of America CEO Brian Moynihan said the sheer volume of AI capital investment matters for the lender's investment-grade debt and leveraged finance businesses. Yet the opportunity depends on unknowns, including whether demand for computing power keeps pace with expansion plans, what returns data center projects generate, and the potential for local opposition. Wells Fargo CEO Charlie Scharf described the AI investment cycle as a complicated macroeconomic force in its own right, noting the significant leverage used to finance it and upward pressure on prices in some industries and supply chains, though he said the economy's strength has so far outweighed the potential downside.

Higher-for-longer interest rates, or further increases, could raise financing costs for data center projects, squeeze returns and make it harder for borrowers to service debt. Morgan Stanley CFO Sharon Yeshaya told Reuters the bank is very discerning about the risks it takes, warning that a loosening of credit standards by peers is what creates problems. CEO Ted Pick told analysts that involvement in AI financing is existential for the firm.

Investors are split on the exposure. Macrae Sykes, a portfolio manager at Gabelli Funds, said tech spending that drives broader economic growth is positive for banks, but that credit exposure tied to speculative data center builds could cause issues down the road. Dave Ellison of Hennessy Funds said banks have not abandoned the lessons of the financial crisis and are being more careful than investors fear, often acting as arrangers that distribute risk rather than hold it.

Banks are also deploying AI internally, though the financial payoff is hard to quantify. JPMorgan CFO Jeremy Barnum said it takes a long time for such changes to become visible at an institution of its size, so it is no surprise benefits are not yet showing in quarterly earnings. Fraser said Citi is developing products up to 40% faster at lower cost and has cut tech vendor expenses by 30% through coding tools, with AI and automation benefits outweighing investments made so far this year. Brian Mulberry, chief market strategist at Zacks Investment Management, warned that if productivity gains and lower costs do not arrive by the end of next year, investors will begin to question the hype. On security, AI agents that act autonomously are creating new challenges, and JPMorgan CEO Jamie Dimon said the bank is developing tools to navigate agentic AI risk.