Global credit markets could face significant volatility if there is a downturn in the booming AI sector, as rising debt levels among tech borrowers leave investors exposed to an unusually concentrated investment cycle, KKR warned in a report on Wednesday. With tech firms projected to pour nearly $8tn into AI infrastructure by 2030, a fifth of the investment-grade index could end up being exposed to AI risks, said the New York-based investment firm, which manages $796bn across private equity, private credit and other markets. It added that the true extent of AI exposure could be much bigger because of the growing use of off-balance-sheet financing, meaning that many portfolios could have a greater weighting in the sector once credit guarantees, leases and other future commitments are included.

"We don’t think enough people are talking about the potential volatility if AI growth slows," Christopher Sheldon, co-head of credit and markets at KKR, told the FT. "This is multiples on trillions of dollars of market value. The knock-on effects across the broader markets could be very meaningful."

Tal Reback, managing director at KKR and co-author of the report, pointed to a market in which seemingly distinct exposures are increasingly driven by the same underlying economics. The warning comes amid growing concern among some investors over the extent of the tech sector’s borrowing spree, which is tapping every corner of the credit market, from highly rated investment-grade bonds to junk debt and securitised products, and reshaping the way the world borrows money in the process.

AI-linked debt currently amounts to about $600bn, or around 6.3 per cent of the US investment-grade market. In comparison, the highest sector exposure in the index was only 2.6 per cent on average over the past 29 years, KKR found. John Queen, a fixed income portfolio manager at Capital Group, said he had been closely monitoring the overall AI concentration as Big Tech firms issue debt across various asset classes.