Pension funds, insurers, and US consumers face major risks from spillover effects.
Moody’s Ratings on Wednesday laid out exactly how a collapse in artificial intelligence stocks could hit every corner of the economy, from Wall Street to people’s wallets.
They aren’t calling it a bubble… yet. But they did describe what it would look like if one blew up. They put the drop at 40%. And if that happens, it’s not just AI startups that get smoked. Credit markets, pensions, consumers, and even some of the biggest lenders in the country would feel it.
Right now, tech giants are pouring about $500 billion into data centers for AI. That kind of cash doesn’t just vanish quietly if things go wrong. Vincent Gusdorf and his team at Moody’s laid out what they call “contagion channels” that would carry the damage through the financial system.
Private credit, pensions, consumers all face exposure
The first hit would land on private credit firms. These lenders have been shoveling money into AI companies. If the value of those companies crashes, they’d need to go back and change loan terms to avoid straight-up defaults.
New lending would be frozen. And because many of these private credit funds don’t report real-time losses, no one would see the damage until investors try to get their money out.
“Redemptions from open-ended private-credit vehicles could hit withdrawal limits and trigger suspensions,” the Moody’s report said. “By the time suspensions are lifted, collateral may have lost substantial value.”
Then come the pensions. Moody’s said funds that bet big on AI stocks (and there are plenty) would get hit hard. Many of them don’t actively manage those positions either. They’re locked into passive strategies. If valuations tank, they eat the losses. Insurance companies could get dragged into lawsuits if they’re seen as unprepared for the hit.
Regular Americans aren’t safe either. If the market takes a dive, consumers might feel poorer and pull back spending. That’s a direct hit to the economy, which right now is still being held up by strong spending.
Moody’s traced the risk back to how the AI craze is being funded. This isn’t just a couple of venture capital bros throwing cash at some science experiments.
This is deep money from all angles: private lenders, public markets, credit firms, and more. Banks haven’t been handing out direct loans to AI startups, but they have been offering leverage to the private credit world. If things go south, that leverage becomes a liability.
In the first half of 2025 alone, over 50% of all venture capital went to AI startups. That’s a huge share for one sector. One bad earnings report from a major AI player, or doubts about how much revenue labs like OpenAI or Anthropic are actually generating, could be enough to set off a chain reaction.
Moody’s said Microsoft and Alphabet would likely come out cleaner than most. They’ve got money coming in from all over, not just AI. If the crash comes, they might even be in a position to scoop up AI companies at lower prices.
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