AI Is Quietly Unraveling Wall Street’s Leveraged Gambit

AI was supposed to make you rich. Instead, it’s threatening to blow up a $1.8T shadow market. Private credit, where investors quietly make risky bets, loaded up on software and service firms during the pandemic. Now those stakes are looking shakier by the day, and Wall Street is hearing echoes of 2008.

• Analysts fear AI automation could render those borrowers obsolete — and investors are already pulling their money out amid valuation concerns.
• The contagion risk is real, since private credit is funded by pensions and insurers — meaning a default cascade could soon spew into public markets.

The hangover spreads: The fear has already spilled over into action — OracleORCL

just announced up to 30K cuts, while Morgan StanleyMS

trimmed 2.5K roles amid a broader post-pandemic unwinding. The pain has hit valuations too, with the Magnificent Seven shedding ~6% since October — though for contrarian investors, that’s starting to look like a discount. NvidiaNVDA

now trades at just 21x forward earnings, in line with the broader S&P 500 and well below its ten-year average of 35x. For now, the biggest bargain in the AI gold rush is the wreckage it left behind.