BIS Warns of Financial Stability Risks Amid AI Investment Boom and Increased Reliance on Debt and Private Credit

[Mexico City = Shim Young-jae, Special Correspondent] The Bank for International Settlements (BIS) has warned that the competition for investment in artificial intelligence (AI) is increasingly reliant on debt and private credit, posing risks to financial stability. As capital expenditures by major AI companies outpace cash flows, there are concerns that the complex financial interconnections between corporations and financial institutions could lead to widespread economic shocks if future profit expectations are not met.

According to CoinDesk, Pablo Hernández, the BIS President, stated on the 10th (local time) that while investments in AI technology are rapidly increasing, if companies fail to generate the returns expected by investors, it could jeopardize financial stability. He emphasized the need for caution, considering the current scale and speed of investments, as well as the expected levels of future commercial profitability, without definitively stating that an AI bubble will inevitably occur.

AI Companies' Capital Expenditures Outpace Cash Flows, Increasing Reliance on Debt and Private Credit

According to CoinDesk, President Hernández pointed out that the capital expenditures of large AI companies are increasing faster than their own cash flows. As major companies compete for AI leadership, the proportion of funds sourced from debt and private credit is also growing.

He compared current AI investments to past large-scale technology investment booms, citing examples such as the canal investment boom of the 1830s, the British railway investment boom of the 1840s, the electrification investments of the 1920s, and the dot-com investment boom of the late 1990s.

President Hernández explained that while all these investment booms were based on significant technological advancements, they ultimately attracted more capital than could be justified by actual returns. When adjustments occurred, the shocks did not remain confined to the respective industries but spread throughout the economy.

"All attracted more capital than could ultimately be justified by returns," he said, adding, "The adjustments that followed in each case affected the entire economy."

According to CoinDesk, another issue highlighted by the BIS is the financial interconnectedness surrounding the AI industry. Semiconductor companies, large cloud providers, and AI firms are interconnected through various financial contracts, with some structures being opaque or difficult to value.

If the profits expected from AI in the future turn out to be lower than anticipated, these interconnected structures could exacerbate vulnerabilities in the financial system, President Hernández explained.

AI Investment Expected to Reach Up to $4 Trillion by 2030

Investment scales are also rapidly expanding. President Hernández stated that the five major tech companies plan to invest over $1 trillion in AI-related businesses between 2025 and 2026.

Global investments related to AI are expected to rise from approximately $500 billion currently to between $3 trillion and $4 trillion by 2030.

Recent data released by Bridgewater Associates also illustrates the scale of AI investments. According to CoinDesk, citing Bridgewater's data, Microsoft, Alphabet, Meta, and Amazon are expected to invest a total of $650 billion in AI infrastructure this year. The combined market capitalization of these companies is about $12 trillion.

Warnings about an AI bubble have been continuously raised in the financial markets this year. CoinDesk also highlighted a case where a pessimistic 2028 scenario released by Citrini Research in February affected investor sentiment towards tech stocks.

The BIS identified the high proportion of AI-related stocks in the U.S. stock market as a risk factor.

According to President Hernández, if the stock price surge concentrated on specific AI stocks reverses, it could impact household consumption. Given the significant share of U.S. stocks in the global market, adjustments occurring in the U.S. could potentially spread to other countries.

"Since U.S. stocks hold a large share in the global stock market, their impact could spread worldwide," he said.

He also mentioned the possibility that unexpected profits from increased AI-related exports could lead to rising domestic asset prices in some countries. In this case, the financial stability issues arising from expanded AI investments may not be limited to those companies or the U.S. financial market but could connect to asset markets in various countries.

However, President Hernández clarified that he is not asserting that the current AI investment boom will necessarily lead to a bubble collapse.

"I am not saying that the AI boom will inevitably lead to such outcomes," he stated, adding, "The scale and speed of the current investment boom, as well as the expected proportion of commercial profitability, indicate that some caution is warranted."

"AI Productivity Effects Are Real"... Central Bank Role Remains

The BIS did not deny the economic effects of AI technology itself. According to CoinDesk, President Hernández stated that there is already evidence that AI is enhancing productivity in areas such as coding, consulting, and professional document writing.

However, he explained that the ultimate effects of AI on the economy as a whole could vary depending on how broadly the benefits of productivity improvements are shared. He also highlighted the importance of how much policymakers invest in worker skills training, infrastructure, and competition promotion.

President Hernández noted that AI does not change the fundamental responsibilities of central banks. Instead, he explained that as AI spreads, the structure and dynamics of the global economy become more complex, making it more challenging for central banks to interpret and monitor economic conditions.

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