Bank of England Warns AI Debt Boom Risks Market Contagion
The Bank of England has sounded alarms over the $5 trillion AI spending surge, warning that tech sector volatility could Ripple through debt markets. Hyperscalers currently fund projects with cash reserves, but 50% of future expenditures will rely on borrowed capital—a vulnerability highlighted by stress in credit default swaps.
A sharp correction in AI stocks would erode UK household wealth, dampening consumer spending and tightening credit for companies building AI infrastructure. The central bank’s Financial Stability Report draws parallels to the dotcom bubble, noting ‘early warning signs’ in Leveraged financing.
Governor Andrew Bailey tempered concerns by noting AI firms generate actual revenue—unlike 1990s internet startups—but cautioned that debt-fueled data center expansion remains a systemic risk. ‘When the tide goes out, we’ll see who’s swimming naked,’ he remarked, paraphrasing Warren Buffett.
