State Street's 2026 'grey swan' warning: AI 'fails to scale'

Group 1: AI Growth Constraints - A significant gray swan scenario is the potential failure of AI to scale due to hard constraints such as chip shortages, power grid limits, and regulatory backlash [2][3] - The energy consumption of advanced AI models could lead to severe consequences if demand exceeds grid capacity, potentially resulting in political backlash and environmental scrutiny [3][4] - In Virginia, data centers, which account for over 20% of sales, could see energy demand double by 2040, indicating public resistance to AI growth [4][5] Group 2: Sovereign Bond Market Stress - Rising fiscal debt and heavier bond supplies have been monitored, with a potential for a buyer strike in developed sovereign markets [7][8] - France is identified as a likely candidate for a bond shock due to high deficits, low growth, and political crises, which could lead to a sudden buyer strike affecting other European sovereign bonds [9][10] Group 3: Oil Price Volatility - Oil prices declined by 18% last year, marking the steepest decline in five years, currently priced around $65 per barrel, with a modest outlook due to weak demand and spare capacity [11][12] - A potential gray swan scenario includes a significant increase in oil prices driven by geopolitical disruptions or shifts in demand from India and China [13][14] Group 4: Positive Economic Outlook from China - A favorable gray swan scenario involves China implementing a demand-driven pivot to empower consumers, which could include stimulus measures and supportive property laws [16][17] - Such policies could boost traditional and new sectors, attract foreign investments, and positively impact regional currencies and commodity demand across Asia [18]