Bank of England Warns: AI Debt Boom Risks Triggering Wider Market Fallout in 2025

• Why Is the Bank of England Worried About AI Debt?
• How Could an AI Crash Spread Beyond Tech Stocks?
• Is This Really Another Dot-Com Bubble?
• What's the Oracle Connection?
• Nvidia's Balancing Act
• Historical Echoes: 2000 vs. 2025
• The UK's Vulnerability
• What Comes Next?
• FAQs: AI Debt Bubble Concerns

The Bank of England has sounded the alarm on the explosive growth of AI-related debt, warning that a potential tech stock crash could Ripple across global markets. In its latest Financial Stability Report, the central bank highlights how $5 trillion in projected AI spending over the next five years—half funded through external borrowing—creates systemic risks. Oracle's widening credit default swaps and Nvidia's market dominance emerge as key stress points in what some analysts call the new dot-com bubble.

Why Is the Bank of England Worried About AI Debt?

In my experience covering financial markets, I've rarely seen a sector accumulate debt this rapidly while still generating substantial cash flows. The Bank's report reveals that AI-related corporate debt issuance has surged in recent months, with Oracle's 5-year CDS spreads ballooning from 40 to 120 basis points since July 2024. What makes this concerning is that while tech giants like Nvidia ($4.37T market cap) currently enjoy robust earnings, their massive infrastructure investments—think those sprawling data centers powering ChatGPT-5—are increasingly debt-fueled.

How Could an AI Crash Spread Beyond Tech Stocks?

The Bank outlines three contagion channels: First, UK households have loaded up on tech ETFs—a 20% drop in AI stocks WOULD wipe out £180 billion in wealth. Second, banks exposed to AI developers (looking at you, Silicon Valley Bank alumni) would tighten lending standards across the board. Third, and most dangerously, credit markets could freeze as CDS spreads spike. Remember 2008? It's not subprime mortgages this time—it's collateralized AI obligations.

Is This Really Another Dot-Com Bubble?

Here's where it gets interesting. Governor Andrew Bailey acknowledges similarities—the breakneck spending, the "if you build it they will come" mentality—but stresses one critical difference: "These companies aren't burning cash like 1999 Pets.com. Nvidia's free cash Flow could buy Twitter twice over." Still, the BTCC research team notes warning signs: 66% of S&P 500's 2025 gains trace back to AI hype, while actual productivity gains remain theoretical.

What's the Oracle Connection?

Oracle Corp has become the canary in the coal mine. Their CDS spreads now trade like a tech junk bond despite being investment-grade six months ago. Why? The database giant issued $30 billion in debt this year to fund AI infrastructure, yet sports thinner margins than cloud rivals. Traders are essentially betting Larry Ellison's empire becomes the first domino to fall if AI adoption slows.

Nvidia's Balancing Act

The chipmaker's $4.37 trillion valuation—yes, that's more than the GDP of Germany—rests on an astonishing premise: that every industry will need its H100 chips forever. But here's the rub: Their partnership web (including that eyebrow-raising Intel deal) means trouble at Nvidia could sink multiple balance sheets simultaneously. As one hedge fund manager told me last week: "When your biggest customer is also your biggest competitor, that's not a supply chain—it's a house of cards."

Historical Echoes: 2000 vs. 2025

Comparing TradingView charts from both eras reveals eerie parallels—the same parabolic rises, the same "this time it's different" rhetoric. But 2025 has unique risks: AI's capital intensity dwarfs the dot-com era, with single data centers now costing more than entire 1990s tech startups. And unlike website hosting, you can't scale back AI infrastructure easily—those GPU clusters either run hot or become boat anchors.

The UK's Vulnerability

Britain finds itself uniquely exposed because: 1) London banks underwrite 40% of European tech debt 2) UK pension funds hold $220 billion in tech corporate bonds 3) The FTSE's lack of native AI champions means reliance on volatile US tech stocks. The Bank's stress tests suggest a 30% tech correction could trigger £45 billion in pension fund margin calls.

What Comes Next?

Mark my words—we'll see either a spectacular productivity boom that justifies these valuations, or the mother of all debt reckonings. The Bank expects pivotal moments in Q1 2026 when $800 billion in AI-related debt matures. Until then, keep an eye on those CDS spreads and maybe—just maybe—take some chips off the table.