TL;DR: The Bank for International Settlements warns that record AI investment now propping up global stock markets is building financial vulnerabilities that could trigger the next crash. Its Annual Economic Report points to more than $1 trillion in hyperscaler spending, circular financing, and inflation risks already surfacing in consumer prices.
The Bank for International Settlements, the central bank for central banks, warns that the vast surge of AI investment that has powered global stock markets to record highs risks ending in a financial bust. In its Annual Economic Report, published on Sunday, the BIS said the spending is accumulating vulnerabilities that could amplify any future shock and spread from markets into the wider economy. Presenting the findings, BIS general manager Pablo Hernández de Cos framed the message as one of urgency.
A trillion-dollar race outpacing earnings
The scale of the spending sits at the core of the warning. The five largest hyperscalers are on track to commit more than $1 trillion (€878bn) to AI-related investment across 2025 and 2026, a pace that outstrips their earnings and free cash flow and pushes some to borrow heavily to keep up. The BIS suggests a belief that only a handful of dominant players will prevail is fuelling the race, encouraging firms to pour money into projects whose returns remain deeply uncertain.
The report sets the boom against past manias, from the railway mania of the 1840s to the dotcom bubble, noting each ended in an eventual reversal of investment that induced economy-wide recessions. The BIS also flags the spread of circular financing, in which chipmakers and cloud giants take equity stakes in AI labs that then commit to buying their chips and computing power, recycling money back to the original investors as revenue.
Echoes from Chinese wealth funds
The caution extends beyond central bankers. Two large Chinese wealth funds warned that the AI super bubble may be ready to burst, according to investor letters reviewed by Bloomberg. Wealspring Asset, which manages over $1.4 billion, said the "collapse point may not be far away," while Banxia, with nearly $300 million under management, argued that AI firms lack a durable business moat.
Costs reaching consumer prices
The strain is no longer confined to corporate accounts. Some economists now warn of a so-called "third wave" of inflation, after the pandemic and tariffs, driven this time by the AI build-out as chip makers prioritise high-margin parts for AI servers. Apple raised prices on its MacBooks, iPads and other devices last week, citing a surge in demand for memory and storage, and its shares fell around 6%, their worst day in over a year.
Goldman Sachs expects data centres to account for nearly half of the growth in US electricity demand by 2030, with consumer power prices forecast to rise around 6% a year through 2026 and 2027. The BIS stresses that AI could yet prove disinflationary if its promised productivity gains arrive, but it notes that the build-out's hunger for electricity is already pressuring input costs.
Sources: Euronews, Bitcoin News
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