A top strategist at State Street says the biggest AI risk this year is not investor sentiment but physical limits.
In a new CNBC interview, Jennifer Bender, global chief investment strategist at State Street, names one of the firm’s annual “grey swan” scenarios, describing it as a low-probability event that could meaningfully reshape markets.
According to Bender, a top candidate this year centers on AI hitting structural bottlenecks rather than fading hype.
“Every year, we put our outlook at the same time for the year. We put our grey swan outlier scenario. I mean, these are low-probability events that have the potential to shape markets in a meaningful way. We gather as a group. We debate which ones we think are the most likely of these least likely events.
And the first one is definitely that AI fails to scale. And this is less about investors getting nervous about AI and more about AI just running into hard constraints as it tries to grow. And the ways that we can envision this happening are chip shortages, power grid limits and/or regulatory backlash. And in the worst-case scenario, they converge to create a perfect storm.”
Bender points specifically to energy as a pressure point, noting that advanced AI systems require enormous power to train and deploy.
“You take grid capacity, for instance, training and deploying advanced AI models, as we know, consumes staggering amounts of energy. If demand spikes beyond grid capacity, the consequences would be severe.”
She adds that political and environmental scrutiny could intensify if electricity demand surges beyond local infrastructure capacity.
“And we can actually see, if we get a big demand spike, some pretty significant political backlash and environmental scrutiny. I mean, we’ve seen a little bit of focus already, for instance, in Virginia, where Loudoun County has the world’s highest concentration of data centers. Data centers today already account for over 20% of sales, and demand is only forecast to grow rapidly. It could actually double the total energy demand within that county by 2040. And you’re seeing signs of public resistance surfacing, and that does present a potential obstacle to AI growth.”
Loudoun County, often called “Data Center Alley,” is home to a dense cluster of server farms that support global cloud and AI infrastructure.
Bender appears to suggest that the risk is not that AI disappears, but that scaling runs into hard physical, political and regulatory limits at the same time. If those constraints collide, a technology expected to drive productivity and earnings growth could instead become the source of volatility.
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