AI Investment Boom Poses Financial Stability Risks, BIS Chief Warns

The rapid expansion of artificial intelligence is creating new risks for global financial stability, driven by massive investment levels and a shift toward opaque financing methods, according to the head of the Bank for International Settlements (BIS).

Pablo Hernandez de Cos, speaking at a conference hosted by India's central bank, stated that spending on AI infrastructure has reached a scale significant enough to influence global economic conditions.

Investment Scale and Opaque Financing

The BIS estimates that the world's five largest technology firms are projected to invest more than $1 trillion in AI between 2025 and 2026. Broader industry forecasts suggest total global AI investment could surge from approximately $500 billion today to as much as $4 trillion by 2030. Hernandez de Cos noted that this boom is increasingly financed through debt and private credit rather than corporate earnings.

He warned that much of this funding remains "opaque and interconnected," which merits close scrutiny from regulators. Hernandez de Cos drew parallels to previous speculative booms, such as the railway expansion and the dotcom surge, cautioning that lofty valuations and market concentration could create vulnerabilities if corporate profits fail to meet high expectations. "The scale and speed of the current investment boom, and the weight of expected commercial returns, do warrant some caution," he said.

Economic and Market Implications

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For central banks, AI presents a complex challenge. While studies show generative AI can boost productivity by 10% to 65% in specific tasks and could raise economy-wide productivity growth by about 0.5 percentage points a year, it also makes economies harder to interpret. Hernandez de Cos explained that AI affects demand, supply, and financial markets simultaneously, complicating monetary policy decisions.

The AI boom is also reshaping global trade. Economies deeply integrated into the technology supply chain, including South Korea, Singapore, Malaysia, and Taiwan, have seen benefits from stronger export prices for AI-related chips and equipment. Advanced economies are expected to be the first to realize broad benefits due to their large service sectors, though Hernandez de Cos noted India has a "genuine opportunity" to leverage its digital infrastructure to close the gap.

Labor Market and Long-Term Outlook

While AI can enhance worker productivity, it also has the potential to replace routine cognitive tasks. Hernandez de Cos observed that while widespread job losses have been limited so far, there are emerging signs of displacement in customer service, programming, and administrative roles. This trend underscores the growing importance of worker retraining and reskilling programs.

Ultimately, the long-term impact of AI will depend on policy choices and investment in skills and infrastructure, Hernandez de Cos concluded. "The promise of AI is real," he said, but cautioned that its benefits must be widely shared to ensure sustainable growth.