Overview
- In its annual report released June 28–29, the Bank for International Settments elevated the AI infrastructure race to a systemic financial‑stability concern and compared the surge to past investment manias that ended in broad recessions.
- The BIS said the five largest hyperscalers are on track to spend more than $1 trillion on AI capex across 2025–26 and that this pace is outstripping those firms’ earnings and free cash flow, pushing some to issue debt.
- Much of the financing runs through private credit, hedge funds and bespoke supplier deals, and the BIS warned that 'circular financing'—where suppliers, customers and startups take cross stakes and lock in long purchases—can hide risks and let the same asset be pledged multiple times.
- The report identified clear transmission channels: strong demand for chips, data centers and electricity is raising input costs, and a large equity repricing could hit consumption hard because household exposure to stocks has grown relative to income and wealth.
- The BIS stopped short of prescribing rate moves and instead urged policymakers to build robustness by extending prudential oversight to non‑bank lenders, monitor private credit strains and preserve fiscal space as markets and regulators assess next steps.