The private credit industry is playing a bigger role in funding the rapid growth of artificial intelligence (AI) companies. However, a new report warns that this trend could backfire, leading to significant losses if markets suddenly correct. The Financial Stability Board (FSB), which oversees financial authorities across 24 countries, has raised concerns about the risks tied to this booming sector.

AI Companies Drive Private Credit Growth

In recent years, AI firms have increasingly relied on private lenders to finance their infrastructure needs, such as datacentres. These companies now make up more than a third of all private credit deals in 2025, a sharp rise from just 17% five years earlier. Sectors like healthcare, tech, and services have become the biggest borrowers of private credit, with AI being a major contributor.

The report highlights that this focus on specific sectors might expose private credit funds to risks that are unique to those industries or regions. If there is a sudden downturn or shock, these funds could face sizable losses. The rapid increase in asset valuations linked to AI investments is also a concern, as a quick correction could cause a cascade of financial problems.

Risks and Concerns for the Financial System

The FSB warns that a sharp decline in the value of AI-related assets could lead to big credit losses for private credit investors. One key risk factor is the supply of electricity, which is critical for running datacentres. Any major disruption or delay in power supply could halt construction or operation of these facilities, causing project cancellations or postponements.

There’s also concern about overbuilding datacentres. If investments lead to an oversupply, the demand for AI services might not keep up, pushing down valuations and returns for investors. This oversupply could further destabilize the market, especially if private lenders are heavily exposed. The report emphasizes how interconnected banks are with private credit firms, often lending directly or financing risky portfolios, which amplifies overall systemic risk.

Recent failures of private credit-backed companies, like two US automotive firms—Tricolor and First Brands—highlight these dangers. Both companies faced fraud allegations after collapsing, exposing banks like JP Morgan and Barclays to losses. The incidents show how closely banks are tied to private credit markets and how fragile these connections can be amid corporate failures.

The FSB also points out that private credit lenders tend to have lower credit scores and higher debt levels than traditional banks, raising concerns about their resilience. While advocates argue private lenders can offer tailored loans and better risk monitoring, critics warn that the sector’s opacity and the lack of regulation increase the chances of hidden risks and sudden shocks.

These issues have already caused some private credit funds to face mass withdrawals, forcing them to limit investor access. The sector’s growth outside traditional banking channels means that traditional banks are increasingly involved, either by lending to private credit firms or financing borrowers who also take private loans. This web of interconnected exposures makes the entire financial system more vulnerable to shocks.

The report underscores the importance of careful oversight. It warns regulators and investors to stay vigilant, especially as AI investments continue to expand rapidly. The potential for a market correction, triggered by electricity shortages, oversupply of datacentres, or corporate failures, could cause significant losses across the sector. The recent collapses of companies like Tricolor serve as cautionary tales about the risks involved in private credit-driven AI funding.

Inspired by

• https://www.theguardian.com/business/2026/may/06/global-finance-watchdog-warns-over-private-credit-industry-fuelling-ai-boom