The Bank for International Settlements issues a warning over the growing debt associated with AI investment, highlighting increased financial risks amid a fragile global economic backdrop and rising leverage in US tech giants.
The Bank for International Settlements has warned that the AI-fuelled rally that helped lift global share prices over the past two years is beginning to show cracks, as investors grow less certain that the technology will deliver the profits once expected. Frank Smets, the BIS head of economic analysis, said the momentum behind AI, which had helped support equity markets and the wider global economy, now appears more fragile as leverage at large US technology groups climbs.
That caution comes against a backdrop the BIS described as unusually unsettled, with public finances under strain, geopolitical tensions still high and energy prices volatile. The central bank body, which regularly flags risks tied to debt and asset valuations, said the issue is not a collapse in market confidence but rather whether that confidence can last if government bond yields keep rising.
A particular concern is the scale and structure of AI financing. Smets said the BIS is most worried about the pace at which debt and leverage are building, and about the opacity of some funding deals, which can sit off balance sheet and involve circular arrangements. Separate market analysis from MSCI suggests the link between AI borrowing and US Treasury yields is more complicated than some investors assume: direct competition between AI debt and government bonds may be limited, but the sheer volume of issuance could still put upward pressure on borrowing costs across the market.
That scale has grown quickly. The BIS said aggregate borrowing by technology firms has risen from about $22 billion in 2010, equal to 22% of total private credit, to more than $1 trillion, or 44%, by 2025. It added that outstanding loans of all kinds tied to the sector now amount to almost $2.5 trillion. Industry reporting has also pointed to a sharp acceleration in AI-related debt issuance, with some estimates placing this year’s total in the hundreds of billions of dollars as so-called hyperscalers borrow heavily to fund data centres, chips and other infrastructure.
Even so, the BIS stressed that markets are not yet under visible strain. Smets said investors’ appetite for risk has remained remarkably resilient and that there are no clear signs of stress overall. In a separate study, the BIS said it used artificial intelligence to examine thousands of central bank speeches and found that references to core inflation are becoming more frequent and varied, a shift that may complicate communication with the public even as policymakers try to explain a more uncertain economic landscape.
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