Bank of England Warns of Financial Stability Risks in AI Investment Boom

The Bank of England's Financial Policy Committee (FPC) has sounded a warning about the risks associated with the rapid growth in artificial intelligence (AI)-related investment. The committee noted that AI-related financing had continued to grow rapidly and was expected to remain on a strong upward trajectory, with global AI-related debt issuance estimated at around $450 billion as of early September.

The FPC highlighted concerns about the sustainability of AI-related earnings and capital expenditure growth, which may have contributed to market sentiment. The committee also pointed out that the growing use of debt to fund AI investment means developments in the sector could increasingly affect a wider range of investors and funding markets.

Morgan Stanley estimated that AI-related capital expenditure financed through debt issuance could reach around $4.1 trillion between 2026 and 2030, with some of this financing coming from private credit. The FPC noted that the increase in AI-related financing was also visible in private markets, which are expected to play a growing role in funding AI investment.

The committee highlighted risks linked to the combination of increasing leverage, limited transparency, and 'circular arrangements' in AI-related financing. These factors could make it harder to assess risks and increase losses if expectations around AI investment fail to materialise.