In its third-quarter Global Risk Outlook, Fitch noted that the credit environment is primarily influenced by two short-term risks: increasing susceptibility to an AI-induced market correction and lingering uncertainties linked to the U.S.-Iran conflict.
The agency reiterated recent alerts from global financial watchdogs regarding the growing connection between the AI boom and economic growth, especially in U.S. capital markets, which heightens the risks of any substantial selloff.
“The magnitude of AI investments means that the exposure of the economy and overall capital markets to such a correction is considerable,” Fitch stated.
Valuations approach dot-com bubble levels
This forthright warning from Fitch is the most direct yet from any leading ratings firm, coinciding with a steep decline in Asia’s AI-related stocks on Tuesday amid concerns over the funding of this spending surge and escalating competition from China.
Fitch’s report pointed out that the cyclically adjusted price-to-earnings ratio of the U.S. S&P 500 has climbed to levels reminiscent of the late-1990s dot-com boom, while U.S. corporate bond issuance soared by 26% in the first half of 2026, mainly fueled by AI-related fundraising.
Amazon, Alphabet, Nvidia, Meta, Oracle, and SpaceX collectively issued $182 billion in investment-grade bonds, while capital expenditure from Alphabet, Amazon, Meta, and Microsoft is expected to rise over 75% this year to reach $700 billion, according to Fitch.
It is estimated that the surge in IT investment contributed an additional 1.4 percentage points to U.S. GDP growth in the first quarter, with climbing equity prices also bolstering household spending through a wealth effect.
However, uncertainties about future AI revenues, regulation, competitive dynamics, and labor market disruptions could trigger a notable and extended market correction, potentially leading to widespread macroeconomic repercussions.
“The degree to which capital markets and the economy are intertwined with AI has created a credit vulnerability,” Fitch cautioned.
Geopolitical and environmental risks
Geopolitical risks continue to raise alarms, particularly with escalating hostilities between the U.S. and Iran in recent weeks and the recent closure of the Strait of Hormuz.
Fitch anticipates a slowdown in global growth to 2.4% in 2026 and projects U.S. inflation to conclude the year at 3.7%, driven by rising energy prices.
Additionally, the agency identified a strong El Niño weather pattern as an emerging credit risk due to the potential for droughts, floods, and severe storms.
Fitch warned that this phenomenon could exacerbate inflationary pressures associated with the U.S.-Iran conflict.
Heavily indebted countries with “junk” ratings would be particularly at risk, as spikes in food prices could complicate monetary policy, amplify subsidy costs, and further strain public finances.
In Latin America, where fertilizers and diesel represent 50% to 70% of agricultural input costs and approximately 30% of fertilizer supplies originate from the Middle East, rising costs and diminished harvests could tighten agribusiness margins and affect transportation sectors, including ports, railways, and toll roads, Fitch concluded.
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