As artificial intelligence increasingly infiltrates consumer products, smart toys—those that respond to children using machine learning, voice recognition, and cloud-connected databases—are rapidly growing in popularity. But alongside innovation and play come mounting ethical concerns. In late November 2025, The Guardian published a report highlighting the data privacy and developmental risks posed by AI-powered toys, prompting renewed scrutiny from child safety advocates and regulators. The concerns are far from alarmist: as toy makers embed ever more computational intelligence into their products, the potential for surveillance, bias, and manipulation directed at minors grows exponentially.
Smart Toys Are No Longer a Novelty
Smart toys have evolved beyond novelty gadgets into fully fledged learning and entertainment ecosystems. Products like Miko 3, Cozmo AI, and LeapFrog’s LeapPods Max offer interactive conversations, adaptive learning paths, and real-time responses customized to a child’s voice patterns or emotional cues. In February 2025, a report by ABI Research estimated that global shipments of AI-enabled toys will surpass 65 million units by the end of 2025, growing over 20% year-over-year from 2024 levels (ABI Research, 2025).
This explosion in adoption is not surprising. Working parents see promise in AI-driven tools that can supplement early education and social interaction. According to Deloitte’s March 2025 Consumer Technology Study, 61% of parents aged 25-40 have purchased or are considering purchasing at least one AI toy this year, citing “educational enhancement” and “emotional companionship” as top motivators (Deloitte, 2025).
However, developers and parents alike remain divided on whether these toys are developmentally constructive or potentially exploitative. Some critics argue that calling these toys “smart” masks the unregulated data pipelines and machine behaviors operating beneath the surface.
Privacy Violations and Data Collection Practices
The central concern around AI-driven toys revolves around data: what is collected, how it is stored, and who has access. Many toys leverage cloud infrastructure for voice recognition, which means all interactions—including a child’s voice, emotional tone, and queries—can be transmitted to third-party servers. An investigative February 2025 review by Consumer Reports disclosed that several popular AI dolls and robots failed to meet the Children’s Online Privacy Protection Act (COPPA) standards. In particular, toys from small-to-mid-tier vendors were found to transmit unencrypted data and failed to gain verifiable parental consent (Consumer Reports, 2025).
Furthermore, a study published by the MIT Sloan Cybersecurity Lab in January 2025 revealed that 4 in 10 smart toys sold in North America lack locally stored privacy controls, effectively tethering children’s play to centralized AI models hosted overseas. This introduces complications not only around enforcement of domestic privacy laws but also risks covert behavioral profiling by foreign operators (MIT Sloan, 2025).
Data gathered via toys may also be used to enrich underlying language models or training datasets—raising ethical questions about children’s content serving as unpaid inputs for commercial AI. While OpenAI confirmed in their April 2025 transparency update that ChatGPT no longer trains on user inputs without explicit opt-in, many toy-related firms offer no such guarantees (OpenAI, 2025).
Psychological and Developmental Red Flags
Beyond data collection, researchers are warning that AI toys may shape children’s cognitive and emotional development in problematic ways. Kids tend to anthropomorphize their companions. When those companions are driven by reinforcement algorithms, children may develop skewed expectations of relationships or reality. In November 2025, the UK-based 5Rights Foundation published an analysis urging policymakers to adopt stricter controls on algorithmic dialogue systems targeted at under-13s (5Rights Foundation, 2025).
According to developmental psychologist Dr. Susan C. Aldridge, who collaborated on the 2025 OECD AI and Youth Task Force, “We’re creating toys that learn from emotional patterns without being emotionally competent. Without high-level guardrails, children could internalize behavioral mirroring from systems that don’t truly understand nuance or morality.” Interviews conducted by the Pew Research Center in March 2025 further corroborate this point, with 67% of child behavior specialists expressing concern that constant feedback loops from AI companions may reduce spontaneity and creative autonomy (Pew, 2025).
Moreover, gender and racial biases embedded in AI language models have begun to manifest within toy dialogues. A May 2025 audit by Algorithm Watch found that multiple English-language AI dolls tended to associate leadership, bravery, or physics interests with male-related input names like “Jack” versus female-confirming names like “Emma” (Algorithm Watch, 2025). Without structural bias remediation, these intelligent toys risk reinforcing outdated norms in digitally native minds.
Regulatory and Policy Movement in 2025
The legal apparatus surrounding children’s AI tools remains fragmented. While COPPA has been in place since 2000, critics argue it is ill-suited for sophisticated AI-enabled devices. However, regulatory traction is beginning to materialize. On November 30, 2025, following The Guardian’s expose, the Federal Trade Commission (FTC) announced preparations for a new rulemaking cycle that would expand COPPA to cover aggregate AI intelligence processes and predictive modeling even when direct identity is anonymized (FTC, 2025).
In Europe, the Digital Services Act (DSA) and the AI Act are beginning to cover overlaps in ambient AI usage in consumer goods, especially those involving minors. The European Parliament’s Innovation Committee published an open inquiry in October 2025 examining whether toys enabling real-time content adjustments or emotion analysis should be classified as “high-risk AI systems” under the AI Act (European Parliament, 2025).
Some jurisdictions are not waiting. California’s updated Children’s Data Integrity Act, which took effect on January 1, 2025, now includes a “no black box” clause requiring smart toy vendors to disclose any dimensions wherein algorithmic outputs are not explainable to a domain regulator. Violations carry penalties of up to $10 million (CA OAG, 2025).
How Toy Companies Are Responding
Leading manufacturers are increasingly aware of the reputational and legal exposure posed by algorithmic toys. Hasbro, for instance, announced in March 2025 the formation of an internal Algorithmic Ethics Board, stating that “no AI-driven product for children under 12 will launch without third-party psychological auditing.” Similarly, VTech confirmed it implemented strict on-device-processing-only policies after facing scrutiny in 2024 for silently uploading child interaction logs to cloud pipelines (This is the most recent public data available as of 2025).
| Company | Notable 2025 Update | Safety Measures Adopted |
|---|---|---|
| Hasbro | Ethics Board formed (Mar 2025) | Third-party AI audits pre-launch |
| VTech | Switched to local processing | Banned cloud data sync |
| LeapFrog | Transparency Portal launched (June 2025) | Discloses AI training datasets |
This table outlines recent corporate safety actions, aimed at restoring parental trust and aligning with tightening regulations.
Navigating the 2025–2027 Horizon: What Should Parents and Policymakers Expect?
In the near term, the AI toy sector is expected to continue rapid expansion. McKinsey’s 2025 Future of Consumer Tech report forecasts that AI-powered toys and learning tools will generate over $14.7 billion in global revenues by 2027, buoyed by improvements in contextual reasoning and multilingual interaction (McKinsey, 2025).
However, that growth will likely be accompanied by intensified scrutiny. Expect to see the emergence of certifying agencies that rate AI toys for ethics and privacy compliance, much like food safety or carbon footprint standards. Furthermore, parental advocacy groups are predicted to drive community-led boycotts of non-compliant brands, as trust in algorithmic parenting tools confronts generational values around innocence and autonomy.
Policymakers may also introduce stricter transparency requirements on how AI copilots in toys make decisions. Already, Massachusetts lawmakers are drafting the Algorithmic Clarity in Children’s Products Act for a 2026 vote, which would allocate grants to open-source auditing tools tailored to evaluating kid-facing LLM deployments (Massachusetts Legislative Tracker, 2025).
From a technology standpoint, the next phase of smart toys may be shaped by on-device large language models that replace cloud dependencies. Companies like NVIDIA have already published development kits optimized for edge-AI in educational devices, which could reduce latency, minimize data risks, and improve response accuracy (NVIDIA Blog, 2025).
Conclusion: Intelligent Play or Intelligent Surveillance?
As AI toys blur boundaries between education, caregiving, and entertainment, they force a generational reckoning on the limits of automation in childhood. These devices carry undeniable potential to enrich learning and expand imagination—but only if deployed within transparent, ethically engineered systems. Without that safeguard, smart toys may evolve into sophisticated surveillance tools wrapped in playful branding.
Parents, educators, and regulators must not only ask how toys entertain but how they shape cognition, track behaviors, and monetize growing minds. The conversation has shifted from sci-fi hypotheticals to urgent governance. The opportunity is immense—but so is the responsibility.