The Bank for International Settlements (BIS) has warned that exuberance over AI-related investment risks ending in a lengthy investment bust. While spending on data centers and semiconductors is lifting US GDP, the institution is concerned about a shift in financing from cash flows toward debt.
BIS · Bulletin No.120 & Quarterly Review
BIS warns the AI investment "exuberance" risks a long, painful bust
As hyperscaler spending shifts from cash flows to debt and off-balance-sheet "shadow borrowing," the central bankers' bank warns that equity prices have run far ahead of what the debt markets are pricing — and a shortfall in AI monetisation could trigger sharp corrections.
$100bn+
Gross 2025 hyperscaler bond issuance, led by long-term debt
$ trillions
Market estimates of AI-related investment by 2030
2008
Era whose off-balance-sheet structures the BIS draws parallels to
The core divergence: equities vs. debt markets
The BIS flags that equity prices have run far ahead of where the debt market is pricing risk — the gap is the warning.
Equity prices
running far ahead
Debt-market pricing
more cautious
How the funding has shifted
Internal cash flows
how capex was funded
→
Bonds & private credit
rising debt financing
→
"Shadow borrowing"
SPVs, JVs, leases & off-take deals
The pragmatic view
The technology is genuinely transformative. Given its long-term usefulness, a shortfall would mainly mean monetisation is delayed — not that the value disappears.
The warning
If earnings fall short, sharp corrections in equity and bond markets — plus contagion through leveraged private credit and insurance — could hit GDP. Echoes of 1999–2000.
"Sustainability hinges on whether AI firms can meet high earnings expectations."
SIMILAR WARNINGS FROM
IMF · Bank of England · Ray Dalio (Bridgewater) · BCA Research — all flagging extreme valuations, debt-funded spending, and "overbuild" risk if real demand falls short.
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