Overview
- The Bank for International Settlements made the warning in its Annual Economic Report on June 28, saying the scale and speed of current AI investment raise the risk of a sudden reversal if returns disappoint.
- The five largest hyperscaler firms are on track to spend more than $1 trillion on AI-related capital expenditure across 2025–26, a spending surge the BIS says may have fueled overinvestment.
- Much AI financing now flows through hedge funds, private credit vehicles and special-purpose deals that hide leverage, which the BIS says creates blind spots and could speed contagion if private credit withdraws.
- AI’s heavy demand for chips, electricity and data-centre capacity is already pushing up input costs, which the BIS warns could entrench inflation and force harder policy choices for central banks.
- The BIS urged policymakers to boost oversight beyond banks, strengthen fiscal positions, and improve transparency in private credit markets to reduce the risk of a sector-driven hit to households and the broader economy.