The AI boom's historical warning

The Bank for International Settlements—the "central bank for central banks"—is warning that today's artificial intelligence investment boom resembles past technological booms that ended badly. According to the BIS, historical surges in infrastructure like railroads and the internet sparked enormous capital spending before economic returns materialized. Those episodes ended with sudden reversals in investment and recessions. The concern: today's AI spending may attract far more capital than near-term payoffs justify. If that pattern holds, the damage could spread fast. When hyperscalers eventually cut back, suppliers and lenders sitting on debt could face serious trouble. That stress could cascade through private credit markets—where direct lending funds with AI exposure are already facing redemption requests and forced asset sales. The risk is amplified by concentration. Today's AI boom flows through a tightly linked ecosystem of hyperscalers, suppliers, and lenders whose interconnections could accelerate any slowdown, especially as policymakers juggle stubborn inflation and strained public finances. The BIS is careful to note: AI could ultimately deliver the productivity gains markets expect. Getting there means navigating an investment cycle and financial vulnerabilities that policymakers have never faced together.

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