BASEL, Switzerland —The Bank for International Settlements is warning that investor enthusiasm surrounding artificial intelligence may prove temporary, cautioning that heavy investment, opaque financing arrangements and supply constraints could undermine the sector’s long-term outlook.
In its annual report released, the Bank for International Settlements identified AI as one of four major “pressure points” facing the global economy, alongside persistent inflation, fragile liquidity in government bond markets, and historically high public debt coupled with elevated interest rates.
“Optimism surrounding AI may not last, despite its promise of future productivity gains,” the BIS said in a news release accompanying the report.
Role of Bottlenecks
According to the BIS, the current surge in AI-related capital spending could become unsustainable if production is constrained by supply bottlenecks. The organization also warned that fierce competition among companies seeking AI leadership could result in excessive investment similar to previous technology booms.
The report also highlighted concerns over what it described as the opaque nature of AI financing.
According to the BIS, hyperscale cloud providers, semiconductor manufacturers and AI laboratories are linked through “a complex web of private arrangements,” including so-called circular financing deals.
In those arrangements, the BIS said, chipmakers and hyperscalers acquire equity stakes in AI labs or cloud computing providers in exchange for multiyear commitments to purchase semiconductors or computing capacity.
Risk from Undisclosed Terms
The BIS said the terms of many of those agreements are not publicly disclosed, creating the risk that the same assets could be pledged multiple times as collateral.
“Together, such arrangements account for a sizable share of sector-wide financing and forward revenue,” the report said.
Beyond AI, the BIS warned that stubborn inflation, vulnerabilities in liquidity across core sovereign bond markets and near-record levels of public debt combined with higher interest rates continue to pose significant risks to the global financial system.
