Overview
- The Bank for International Settlements flagged the risk in its Annual Economic Report released on Sunday, saying the scale and pace of AI capital spending resemble past boom–bust episodes.
- The five largest hyperscalers are on track to spend more than $1 trillion on AI-related capital expenditure across 2025–2026, a pace the BIS says is outstripping earnings and free cash flow.
- The report highlights a shift of AI funding into private credit funds, hedge funds and poorly disclosed circular deals where firms are both lenders and customers, which creates regulatory blind spots.
- The BIS noted early signs of strain in private credit, including redemption requests and some blocked withdrawals, and reporters have shown AI exposure spreading into private and crypto-linked products.
- The BIS stopped short of prescribing monetary action and urged tougher oversight of non-bank lenders and clearer disclosure, warning a hyperscaler pullback or weaker AI returns could hit household wealth and consumer demand.