Bank for International Settlements Warns of Debt-Fueled AI Bubble Bursting

The Bank for International Settlements, an institution bringing together central banks from around the world, warned in its latest report that the scale of debt-financed investment in artificial intelligence infrastructure is beginning to threaten global financial stability. According to the BIS, the mechanism resembles the circumstances that led to the 2008 crisis.

The BIS report points to a growing gap between the capital spending tech companies announce and their actual profits and free cash flow. Companies are increasingly turning to debt to finance the construction of data centers, the purchase of graphics chips, and the expansion of computing capacity, rather than covering these expenses out of current revenue.

Circular Financing Under Scrutiny

The BIS is particularly concerned about a mechanism known as circular financing. Chipmakers and cloud service providers extend loans or take stakes in smaller AI companies, which in turn commit to multi-year purchases of hardware and computing capacity from those same investors. Such deals are rarely fully disclosed in financial statements, making it harder for regulators to assess the true scale of the risk.

Another piece of the puzzle is private credit funds, which are becoming increasingly involved in financing AI data centers. The BIS notes signs of stress in this segment, including a growing number of redemption requests, which could point to liquidity problems if the investment boom were to suddenly stop.

A sudden withdrawal of financing could turn the investment boom into a prolonged investment slump with potential macroeconomic consequences - Pablo Hernandez de Cos, General Manager of the BIS

What Happens If Investment Slows

The BIS warns that if hyperscalers, namely Amazon, Microsoft, Google, Meta, and Oracle, cut back or halt their aggressive capital spending, many borrowers across the supply chain could struggle to replace lost revenue and service their debt. The domino effect could spread to memory chip makers, energy suppliers, and data center builders.

BIS General Manager Pablo Hernandez de Cos stressed that the institution has serious doubts about whether the current boom is actually translating into real economic growth or is largely being driven by investor euphoria that could reverse at any moment.

Implications for Markets and Poland

Asian markets reacted immediately to the report's publication. On Monday, following the warning, shares of South Korean memory chip maker SK Hynix fell 1.7 percent and Samsung Electronics fell 4.8 percent, even though both companies have posted enormous year-over-year gains driven by demand from the AI boom. The KOSPI stock index has risen nearly 95 percent since the start of the year, driven largely by companies tied to the AI supply chain.

For Polish investors and businesses using cloud services, the BIS warning carries indirect but real significance. A potential collapse in AI infrastructure financing could translate into higher cloud service prices, a slower pace of price cuts for language models, and greater volatility in capital markets, to which Polish pension and investment funds are also linked.

The BIS does not forecast when, or even whether, a collapse will occur, but it recommends that financial regulators pay closer attention to the links between banks, private credit funds, and tech companies, arguing that the current lack of transparency in these deals makes it harder to detect systemic risk early.

Sources: Bank for International Settlements Warns of AI Bubble Bursting (parkiet.com), AI Bubble Could Lead to Global Financial Crisis, BIS Warns (rp.pl)