BIS warns of vulnerability in global AI market momentum

The Bank for International Settlements, the institution that serves as a coordination hub for the world’s central banks, is sounding the alarm on what it sees as growing fragility underneath the AI-fueled market rally. Frank Smets, head of economic analysis at BIS, flagged increasing signs that the two-year run of AI-driven equity gains may be running on borrowed time, and in some cases, borrowed money.

The warning centers on a familiar cocktail of ingredients: rising leverage among major US tech firms, opaque financing structures, and investor expectations that may have outpaced reality.

A trillion dollars of conviction

The top five hyperscalers, a group that includes Alphabet, Amazon, Meta, Microsoft, and Oracle, are projected to pour more than $1 trillion into AI-related capital expenditures across 2025 and 2026 combined.

The BIS’s annual economic report, released in late June 2026, drew explicit comparisons between the current AI investment surge and prior speculative episodes: canal mania, railway expansions, the electrification boom, and the dotcom bubble. Each of those episodes featured genuine technological breakthroughs. Each also featured a period where capital flooded in faster than returns could justify.

Fierce competition among hyperscalers is driving spending, while supply bottlenecks in electricity and chips are constraining the infrastructure needed to deliver on AI’s promises. If returns disappoint, the BIS warned, the pullback could be sharp.

The circularity problem

Beyond the sheer volume of spending, the BIS has zeroed in on something more structural: the way these investments are being financed. Smets specifically flagged concerns about “circularity” in deals, a term that describes arrangements where companies hold poorly disclosed equity stakes and commitments that create hidden credit risks.

Private credit markets are a key pressure point. BIS officials, including chief Pablo Hernández de Cos, have highlighted that private credit exposure to the technology sector surpassed $1 trillion, representing 44% of the total private credit market by 2025. For context, that same figure stood at roughly $22 billion, or 22% of total private credit, back in 2010.

BIS officials warned of risks stemming from possible disappointment in AI returns leading to a financing pullback.

That financing pullback scenario is what keeps central bankers up at night. Debt-financed AI spending at current levels means that a correction wouldn’t just hit equity valuations. It would ripple through credit markets, potentially tightening lending conditions across sectors that have nothing to do with artificial intelligence.

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