BIS warns AI spending boom could end in a long investment bust

In short: The Bank for International Settlements says today’s rush to fund AI could backfire if profits fall short, leading to a long pullback in investment.

What's going on

The Bank for International Settlements, or BIS, a global group that advises central banks, warned that strong excitement around artificial intelligence could end in a painful investment downturn. It said that if AI projects do not produce the returns investors expect, funding for tech companies could drop quickly.

The BIS pointed to the scale of planned spending. It said the five biggest “hyperscalers” (very large cloud computing companies that run huge data centers, like giant digital warehouses) are expected to invest more than $1 trillion from 2025 through the end of 2026.

The report also noted how companies are raising money to pay for AI work. Tech firms have been selling large amounts of shares and bonds. Bonds are basically IOUs that companies sell to borrow money. The BIS warned that if investors get nervous, they could stop buying those IOUs, which would make it harder for AI companies to fund new projects.

The BIS compared today’s AI investment surge to past booms tied to real new technology, like canals in the 1830s, railways in the 1840s, and the dotcom period in the late 1990s. In those cases, too much money chased the idea, and investment later fell, sometimes alongside recessions.

What to watch

The BIS said an AI-driven stock market drop could matter more than in the past because households have more exposure to shares. Watch for signs that AI investments are not paying off, and for changes in how easily tech firms can raise money, especially as interest rate expectations shift.

Source: Financial Times