The new AI warnings popping up in SEC filings

A growing number of companies in the United States are sounding alarms about the potential risks associated with artificial intelligence (AI). Recent analysis shows that in 2024, 418 publicly traded firms valued at over $1 billion have included AI-related risk factors in their annual filings with the Securities and Exchange Commission (SEC), marking a staggering 46% increase from the previous year and nearly a ninefold rise compared to 2023. These companies warn that AI could negatively impact their businesses through reputational damage, biased information, security breaches, and copyright infringements. Take-Two Interactive Software, for example, has explicitly cited AI risks in its SEC filings, with its CEO Strauss Zelnick acknowledging that increased AI usage brings both opportunity and danger. “With more usage, more experimentation, and more implementation, there's the potential for more risk as well,” he stated in a recent interview. The concerns are widespread, cutting across various sectors. Visa, in a recent filing, noted that as it expands its use of agentic AI, it may face higher instances of erroneous transactions and reputational harm. Clorox also highlighted the risk of AI tools compromising confidential information, while cosmetics brand ELF Beauty warned that changes in AI regulations and stakeholder expectations could significantly impact its operations and reputation. Legal requirements compel companies to disclose new and changing risks in SEC filings to ensure that investors are aware of potential threats. M. Todd Henderson, a law professor at the University of Chicago, emphasized the importance of these disclosures, stating that companies must address 'known unknowns' to adequately inform investors about serious risks. He characterized the current warnings about AI as being far more urgent than the cautious optimism seen during the rise of the internet in the late 1990s. The stakes are particularly high, as missteps involving AI could lead to severe consequences, such as erroneous medical diagnoses or flawed engineering assessments. Furthermore, a global survey conducted by KPMG and the University of Melbourne found that a significant percentage of workers—66%—have used AI outputs without critical analysis, and 72% reported decreased effort in their work due to AI. Despite the associated risks, many companies continue to invest heavily in AI technology, viewing it as a key driver for productivity enhancements. Bain & Co. reported that average AI spending nearly doubled in 2024, reaching $10.3 million among companies with revenues from $50 million to over $5 billion. Zelnick from Take-Two acknowledged the productivity benefits AI brings, stating that it allows employees to focus on more engaging tasks by automating mundane work. However, he cautioned that neglecting to adopt new technologies like AI could also pose significant risks for businesses.