Bank Stocks Under Pressure: AI Boom and Credit Concerns Collide
US bank stocks experienced a dip on February 23rd, driven by a confluence of macroeconomic anxieties and specific concerns surrounding private credit exposure. Even as Morningstar analysts maintain fair value estimates for the sector, the recent selloff highlights growing investor unease about the interplay between the AI-driven data center buildout, potential economic slowdowns, and the health of non-bank financial institutions (NDFIs).
The AI Data Center Debt Load
The rapid expansion of artificial intelligence is fueling an unprecedented demand for data center infrastructure. This demand, in turn, is driving significant borrowing, with a recent $18 billion project finance loan secured for an Oracle-tied data center campus in New Mexico. A consortium of around 20 banks participated in this financing, signaling the scale of investment required to support the AI boom.
However, this surge in lending isn’t without risk. Morningstar estimates that AI data center-related lending constitutes approximately 20% of the total $18 billion in exposure to non-depository financial institutions (NDFIs) across the US banking system. This exposure falls under the broader category of business credit.
Macroeconomic Headwinds and Credit Risk
Beyond the specific concerns about data center financing, broader macroeconomic factors are contributing to the cautious sentiment. Recent tariff announcements have introduced uncertainty into the US economic outlook. The potential for job displacement due to AI disruption raises concerns about a possible increase in consumer-related credit losses.
Despite these concerns, Morningstar’s base case scenario does not currently predict a recession or a substantial rise in unemployment. The firm believes that US banks are well-capitalized, maintaining buffers of 150 to 200 basis points above regulatory minimums, providing a cushion against potential credit losses.
NDFI Exposure: A Manageable Risk?
Median exposure to NDFIs across banks currently covered by Morningstar is around 11% of total loans. These exposures are diversified across various asset classes, and banks generally implement internal underwriting limits by industry.
So far, losses from NDFI lending have been manageable, with subscription line lending and secured real estate lending representing the largest components and generally exhibiting lower risk profiles. However, the increasing scale of lending to this sector warrants continued monitoring.
Did you know? The data center push is impacting everyday Americans, potentially leading to higher electric bills and increased costs for goods and services, according to Goldman Sachs analysts.
The Broader Economic Impact
The financial commitment to data centers is substantial. Data center deals exceeded $61 billion in 2025, and projections for 2026 indicate continued high levels of investment. This investment is not without consequence, potentially contributing to inflationary pressures as businesses pass on increased energy costs to consumers.
Pro Tip: Investors should closely monitor bank earnings reports for updates on NDFI exposure and credit quality, particularly within the technology and data center sectors.
FAQ
Q: What are NDFIs?
A: Non-depository financial institutions are financial entities that do not accept traditional deposits, such as finance companies and investment banks.
Q: Is the US banking sector currently overvalued?
A: According to Morningstar, the US banking sector is currently roughly fairly valued, trading at approximately 1.0 times their fair value estimates.
Q: What is driving the demand for data centers?
A: The demand for data centers is primarily driven by the rapid growth of artificial intelligence and the need for increased computational power.
Q: What are the potential risks associated with data center financing?
A: Risks include potential economic slowdowns, increased energy costs, and the possibility of credit losses if data center projects encounter difficulties.
Want to learn more about the financial implications of the AI revolution? Explore our other articles on technology and finance.
