Substantial debt-fuelled spending on AI is driving up the risk of a global financial crisis, central bankers have warned.
The Bank for International Settlements (BIS) said on Sunday that “excessive” spending on new AI data centres and opaque, debt-fuelled transactions risked a financial meltdown similar to the global credit crunch nearly two decades ago.
The BIS, known as the bank for central banks, said there was growing “peril” in financial markets from the complex web of financial ties between AI giants, shadow banks and data centre builders unravelling.
“Financial stability could … be at risk in the event of an AI bust,” the BIS said. “Should hyperscalers slow or halt the aggressive pace of capex deployment, many borrowers across the supply chain could struggle to replace lost revenue and service their debt.
“The opacity of AI-sector financing compounds these vulnerabilities.”
Pablo Hernández de Cos, the BIS general manager, said there were major questions about whether the boom would benefit the wider economy and warned a reversal of “AI exuberance” could have serious economic consequences.
“One risk is that large-scale investment in AI infrastructure becomes excessive, as each firm tries to outcompete rivals and dominate market share,” he said.
“This could leave the sector more vulnerable if AI underdelivers, possibly bringing the current investment boom to an abrupt end, with large macroeconomic consequences.”
The BIS warning is one of the strongest yet on risks lurking in the AI boom. The Bank of England warned in December that share prices were now the “most stretched” they had been since the 2008 crisis.
The International Monetary Fund has also compared AI valuations to the excesses of the dotcom bubble.
Big tech groups such as OpenAI and Nvidia have turned to complex financial transactions to fund AI’s development, with bot developers often receiving loans from chipmakers to buy the chipmaker’s microchips.
Shadow banks, known as private credit funds, have also piled money into AI data centres to benefit from rising demand for the new technology.
The shadow banking industry is where companies borrow from funds and private equity houses rather than banks. It has expanded rapidly in recent years as regulators around the world have tightened the rules governing mainstream banking.
However, the report added that “signs of stress are already visible” in private credit funds, with many inundated with redemption requests and in some cases forced to block withdrawals.
The BIS said the global economy had weathered Donald Trump’s tariffs and his war on Iran and enjoyed a boost from technology stocks.
However, there were growing “perils” from rising inflation and speculative AI investments which had echoes of similar financial crashes.
‘Potential downside risks’
The bank noted there were parallels between the AI infrastructure surge and the dotcom boom, as well as similarities with the British railway mania of the 1840s or the “roaring 20s” before the Great Depression.
“The scale and pace of the current AI investment boom accompanied by expectations of large productivity payoffs bear resemblance to these precedents, highlighting potential downside risks in the near term,” the report said.
US and Asian stocks linked to the AI boom have swung wildly in recent days amid fears the tech rally could come to a grinding halt.
Global tech stocks plunged on Friday after Apple said it would increase prices because of higher microchip costs.
The Nasdaq dropped as much as 1.3pc.
South Korea’s blue chip index, which is heavily tied to the fortunes of the country’s AI chip businesses, has also seen swings of more than 10pc in a single day.
The BIS also warned that “bottlenecks” in data centre construction or a shortage of chip supplies could threaten the AI boom.
AI giants have already taken to rationing access to their most powerful tools at peak times because of a lack of capacity.
The Financial Times reported on Sunday that Google had capped Meta’s use of the search giant’s Gemini AI because it was struggling to meet the Facebook owner’s demand.
A series of trillion-dollar floats are also testing the appetite of investors for high-risk bets.
SpaceX went public earlier this month, notching a valuation of nearly $2bn (£1.5bn), but shares have since plummeted 25pc from their peak.
The BIS also warned that, with near-record levels of public debt, many countries had failed to secure their public finances during periods of economic growth. Instead they were spending beyond their means, leaving them vulnerable.
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