BIS Warns AI Equity Rally Shows Growing Vulnerability — SkimNews
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- Bank for International Settlements said in a Monday report that the AI-linked equity rally shows 'growing signs of vulnerability,' with investors becoming 'increasingly cautious' about future AI profitability even as leverage at major U.S. tech firms kept climbing.
- Frank Smets, BIS head of economic analysis, flagged 'the rapid increase in debt and leverage' at AI firms as his top concern, noting that financing deals are 'often off balance sheet' with 'circularity' in them.
- AI-linked stocks sold off sharply Monday after heads of major AI firms called over the weekend for slowing the technology's development pace to prevent threats to humanity.
- AI firms' debt issuance of hundreds of billions of dollars could be adding to rising government bond yields, on top of broader fiscal fragility driven by geopolitical tensions and volatile energy prices, Smets said.
- Aggregate tech-firm borrowing climbed from roughly US$22-billion (22% of total private credit) in 2010 to more than US$1-trillion (44%) by 2025, with total outstanding loans of any type reaching almost US$2.5-trillion.
- Despite the warnings, Smets said there are 'no signs of stress' overall and that investors' risk appetite has remained 'remarkably resilient' in recent months, though he called that resilience 'uncertain' if upward yield pressures continue.
Why it matters: The BIS is explicitly tying two market fault lines together — AI-driven equity exuberance and rising sovereign yields — through the channel of opaque, off-balance-sheet AI debt issuance. If investor caution deepens, the same leveraged AI complex exposed to both equity and bond repricing could transmit stress across markets simultaneously, with U.S. tech giants sitting at the intersection.
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