AI-related stock gains unlikely to be dot-com boom replay

(Reuters) -Federal Reserve Vice Chair Philip Jefferson on Friday said he feels the current surge in ​stocks related to artificial intelligence is unlikely to be ‌a replay of the late 1990s dot-com stock boom that ended in a ‌bust, in large part because AI-related firms are well established and have actual earnings.

A recent Fed report showed some 30% of respondents felt a turn in sentiment against AI is a salient risk ⁠to the U.S.‌ financial system and the global economy.

Jefferson noted that investor enthusiasm for AI firms comes against a ‍backdrop of a financial system that is “sound and resilient.”

Also different from the speculative dot-com boom, he said in remarks prepared ​for delivery to a Cleveland Fed conference, is that AI ‌firms have not so far relied heavily on debt financing.

Limited use of leverage “may reduce the extent to which a shift in sentiment toward AI could transmit to the broader economy through credit markets,” Jefferson said.

If future investments in AI infrastructure ⁠require more debt, as some analysts ​forecast, “leverage in the ​AI sector could increase—and so could the losses if sentiment toward AI shifts. I will watch this ‍developing trend closely.⁠”

Jefferson added that artificial intelligence may transform the world in a dramatic and “bumpy” way, though it ⁠is too early to tell with exactly what consequences for the labor market, ‌inflation, and monetary policy.

(Reporting by Ann Saphir;‌ Editing by Chizu Nomiyama )