BIS warns global market AI momentum showing signs of vulnerability
The AI-linked rally that has seen world stock markets soar over the last two years is showing growing signs of vulnerability, global central bank umbrella body, the Bank for International Settlements,...
The Bank for International Settlements (BIS) has warned that the global AI-driven stock market rally, which has propelled equity markets for the past two years, is showing signs of vulnerability. In a recent report, the BIS stated that investors are becoming increasingly cautious about the profitability of future AI investments, especially as major US tech firms continue to accumulate leverage.
The AI momentum, which has been a key driver of equity markets and contributed to global economic resilience, is now facing growing vulnerabilities.
Frank Smets, the BIS head of economic analysis, expressed these concerns on Friday ahead of the report's publication on Monday. AI-linked stocks experienced sharp declines on Monday following warnings from executives of top AI firms that the pace of technology development should be slowed to prevent potential threats to humanity.
The report also highlighted an uncertain global backdrop of strained public finances, driven by geopolitical tensions and volatile energy prices, which may be contributing to rising borrowing costs in the government bond market.
Despite these challenges, Smets emphasized that there are no immediate signs of stress in the markets, and investors' risk appetite has remained remarkably resilient. The BIS, known as the central bank to the world's central banks, has consistently issued warnings about global debt levels and potential stock market bubbles in recent years.
However, the report's authors raised concerns about the financial stability risks posed by AI, particularly the rapid increase in debt and leverage, and the opacity of financing deals often involving off-balance-sheet and circular arrangements.
Furthermore, the BIS examined private market funding pouring into AI, revealing a significant rise in borrowing by tech firms, from $22 billion in 2010 to over $1 trillion in 2025. Almost $2.5 trillion in outstanding loans of various types are now in circulation. The report also found that central bank messaging has become increasingly complex, citing core inflation metrics with greater frequency and variety, which may pose challenges for effective communication with the public.
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