The Bank of England has warned that the global race to build artificial intelligence infrastructure is increasingly being fuelled by debt, creating a growing risk to financial stability if the current AI boom turns into a market correction.
Governor Andrew Bailey said valuations of AI-driven technology companies were now approaching levels last seen during the dotcom bubble in the US, and levels not seen since the financial crisis in the UK and EU. The Bank’s latest Financial Stability Report goes further, highlighting a new risk: the deepening reliance on credit markets to finance an estimated $5 trillion of AI infrastructure over the next five years.
While the tech giants dominating the sector, the so-called “hyperscalers”, will fund part of this investment through their own cash flow, the Bank estimates around half will be financed through external borrowing, much of it debt. That, it warns, is a vulnerability hiding in plain sight.
“The AI sector is a particular hotspot,” Bailey said. “The role of debt financing is increasing quickly as firms seek large-scale infrastructure investment.”
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