Federal Reserve Chair Kevin Warsh offered a cautiously optimistic view of artificial intelligence on Friday, describing the technology as potentially the most consequential economic change of his lifetime while warning investors that the transition will not be smooth. Speaking at the IMF-World Bank Annual Meetings in Bangkok, Warsh said AI could make economies more productive and generate greater wealth over time, but the path may be uneven and disruptive.
His comments landed as markets increasingly question whether the enormous spending on AI infrastructure will produce adequate returns. Bank of America analyst Sebastian Raedler warned that the AI boom may be repeating a pattern seen in previous capital cycles, where strong early returns encourage aggressive investment, eventually creating excess capacity and eroding pricing power. “Most major capital cycles of the past have ended in disappointment, even though the underlying technology often lived up to expectations,” Raedler noted.
Investor concerns are already visible in AI-related stocks. The Philadelphia Semiconductor Index has fallen for seven consecutive sessions and sits roughly 13% below its recent high. CoreWeave, an Nvidia-backed cloud provider, has become a focal point of financing stress: the company carries around $50 billion of debt, and yields on some of its unsecured bonds have surged into distressed territory, with a bond due in 2031 trading above a 16% yield this week.
Interactive Brokers chief market analyst Steve Sosnick said investors are questioning “the speed, the efficacy and the profitability of the rapid build-out in AI.” He added that a slower pace of data-centre construction would eventually reduce demand for hardware. Saxo chief investment strategist Charu Chanana said markets are becoming more demanding about profitability, financing and capital discipline.
Competition at the model level is intensifying, particularly from Chinese open-weight models. Average AI model token prices have fallen roughly 50% since the summer, adding to concerns about whether developers can sustain the profitability required to support infrastructure spending.
Meta’s Muse illustrates the monetization challenge, having attracted millions of users but still needing to prove it can generate cash flow. IDX Advisors chief investment officer Ben McMillan said Meta’s existing audience gives it time to monetise Muse, “but only so much,” especially as higher bond yields offer an attractive alternative.
Warsh also declined to prejudge the Federal Reserve’s October 27-28 policy meeting. He acknowledged that AI is hitting the demand side of the economy before the supply side, and said the employment effects over the next 12 to 18 months remain unknown. However, he maintained that economies using AI effectively should become more productive and wealthier over time.
