Your pension may rely on the 'optimistic assumption' that AI will pay off — Moody's sees 'no playbook' for what's next

With AI now the primary engine boosting America's economic and stock market growth, there are manifold ways that machine intelligence may be involved in your investment portfolio — and also your pension — without you knowing.

Beyond tech stocks comprising a worrying share of indexes and algorithms now informing fund investment decisions , much of the hundreds of billions being poured into mass producing chips, building data facilities and ramping up power generation is coming from a shaky foundation of debt.

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And, a growing number of stakeholders have profound doubts about whether the new technology will ever tangibly be able to return on that debt, which issuers are seemingly doing gymnastics to somewhat experimentally provide when there is, as Moody's Ratings Senior Vice-President Raj Joshi says, "no playbook" for the level of capex investment.

Morgan Stanley, for one, is structuring tens of billions in bonds left, right and center, and developing creative new strategies along the way to provide startups with dollar amounts that are unfathomable to the average person.

As reported by the Financial Times , the financial services company has facilitated some of the largest private credit deals on record in recent months, including $27 billion in debt financing for Meta's largest data hub and another $35 billion for semiconductor darling Broadcom to expand its capacity.

In another noteworthy case, Morgan Stanley handled a multi-billion contract between Google and little-known Bitcoin-turned-data-center-landlord Terawulf, with the former serving as a guarantor for $3.2 billion in leases, receiving 14% of the company in return. Google's presence in the deal attracted more than three times the target demand for what were otherwise speculative low grade bonds.

And who are the primary holders of bonds amid what has been deemed a hyperscaler bond blitz ? Insurance companies and pension funds .

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Pensions have long been home to a diverse mix of private holdings, but with an unprecedented amount of wealth now being thrown at AI initiatives, tech is propping up the S&P 500 like never before, comprising more than 50% of the index's footprint — and also over 15% of corporate bonds .

This means that your pension may have more than just a toe dipped in AI through passive index mutual funds or ETFs, which are now heavily weighted in tech, and also through debt.

"In the next 10 years, the US alone needs over $10 trillion of investing in infrastructure, and the key is, where is the money going to be coming from? Much of [it] is going to be coming from the private sector: from savings accounts, from pension accounts, insurance companies, and so on," BlackRock CEO Larry Fink, who has had a hand in some of the recent data center debt deals, explained in a press conference back in May.

While he called it a way for Americans to "grow with the United States," many experts have wondered how AI will ever become profitable enough to justify such investment.

In the opinion of Goldman Sachs CEO David Solomon, while there will be "winners and losers" in the AI space, "A lot of the capital being deployed will not produce adequate returns… [or] will actually not produce any returns ." He and peers such as JP Morgan CEO Jamie Dimon have trepidation about the market's AI-led exuberance , while others have voiced fears about AI overvaluations and a supply-side gluttony that is based on a hypothetical and perhaps unrealistic level of end-user demand.

As Goldman Sachs economists wrote in a July 10 article questioning if U.S. stock market valuations are outpacing fundamentals, closing the gap between the surge in market valuations and the estimated value of the potential profits of AI productivity gains "needs increasingly optimistic assumptions."