BIS Flags $1 Trillion AI Spending Race as Threat to Global Financial Stability #

The Bank for International Settlements has warned that the financial risks building inside the artificial intelligence boom could trigger a market correction with broader economic consequences, including recession.

In its Annual Economic Report for 2026, published on June 28, the BIS, often called the central bank of central banks, singled out the spending race among the world’s largest technology companies as a primary source of emerging vulnerability. The five biggest hyperscalers, identified in the report as Alphabet, Amazon, Meta, Microsoft and Oracle, are collectively on track to spend more than $1 trillion on AI-related capital expenditure across 2025 and 2026 combined, according to the BIS.

The scale of that commitment is already straining corporate balance sheets. The BIS noted that hyperscaler spending is outpacing both earnings and free cash flow, pushing some firms to issue debt to keep pace with rivals. The institution said the race appears to be at least partly driven by the competitive logic that only a handful of players with superior technology will capture the eventual market, creating a dynamic where companies feel compelled to continue spending even under financial pressure.

That dynamic raises the risk of firms “over-committing resources to investment projects with still uncertain returns,” the report cautioned, leaving the entire sector exposed if AI payoffs disappoint. The BIS drew explicit parallels to previous technology and infrastructure investment cycles that ended badly, noting those episodes “ended with an eventual reversal in investment, inducing economy-wide recessions.”

The contagion risk extends well beyond the hyperscalers themselves. Private credit originations to AI companies surpassed $40 billion in 2025, a market segment with limited public disclosure, while the hyperscalers alone issued more than $100 billion in corporate bonds over the same period. Firms in engineering and construction further down the AI supply chain carry comparatively weak balance sheets, the BIS warned, leaving them particularly exposed to any sudden reversal in spending.

The report also flagged the speed at which a downturn could spread. BIS Asia-Pacific representative Zhang Tao warned that a correction could unwind more rapidly than previous banking crises because much of the AI financing flows through hedge funds and private credit vehicles that face less regulatory scrutiny than conventional banks.

The BIS noted that AI presents competing pressures for policymakers. The investment boom has supported near-term growth and lifted confidence through expectations of productivity gains, while simultaneously creating financial vulnerabilities through elevated asset valuations and signs of investor complacency. The report also highlighted wider macroeconomic pressures, including record-high public debt and sticky inflation, as risks that could amplify any AI-driven shock.

Source: American Banker