BIS warns the AI boom is starting to look like past bubbles

The Bank for International Settlements (@BIS_org), often described as the central bank of central banks, has issued one of its starkest warnings yet on the artificial intelligence investment boom, drawing direct comparisons to some of history's most consequential financial manias.

A Trillion-Dollar Bet With Uncertain Returns

In its annual economic report released on June 28, the BIS put hard numbers to the concern. The five largest hyperscalers are on track to commit more than $1 trillion to AI-related investment across 2025 and 2026, at a pace that is outstripping their earnings and free cash flow and pushing some to borrow heavily to keep up. The BIS suggests this race is fuelled by a belief that only a handful of dominant players will ultimately prevail, encouraging firms to pour money into projects whose returns remain deeply uncertain.

The report also flags what it calls circular financing. Hyperscalers are taking equity stakes in AI labs that then commit to buying chips or compute from those same investors, creating a web of commitments that could unravel quickly if sentiment turns. The BIS warns that such complex financing structures could exacerbate financial vulnerabilities during economic shocks.

Echoes of Railway Mania and the Dotcom Crash

The report sets the current AI boom against a long historical lineage, from the canal mania of the 1830s and Britain's railway mania of the 1840s to the electrification of the 1920s and the dotcom bubble. Each began with a genuine technological breakthrough that attracted more capital than commercial returns could justify, with each episode ending in an eventual reversal in investment that induced economy-wide recessions.

The BIS is not predicting an imminent crash. The report acknowledges that AI has already provided a significant boost to global growth and could substantially raise productivity over the next decade, delivering meaningful efficiency gains for businesses. But the institution is explicit about the downside scenario. Disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust, with potential knock-on effects on financial conditions.

The BIS concern is not just an AI bubble in isolation, but the link between hyperscaler capital expenditure, credit markets, public debt and leveraged non-bank finance. In that context, the warning carries weight well beyond the technology sector.

Sources:
Euronews: The AI boom propping up markets could trigger the next crash
Startup Fortune: The BIS says the AI boom has become a financial stability risk
Futunn News: The central bank of central banks sounds the alarm on an AI bubble