The central bank of central banks is concerned about the outrageous amounts being invested in Artificial Intelligence and raises the specter of a global recession should the bubble burst.
In its 2026 annual report, the Bank for International Settlements (BIS) compared the current craze to historical events, such as the British railway craze of the 1800s, the electrification of the 1920s and the dotcom boom of the 1990s.
The report states ( PDF ): “all shared a common characteristic: a genuine technological breakthrough that attracted capital in excess of what commercial returns could ultimately justify.”
“These episodes ended with a final reversal of investment, triggering an economy-wide recession. The scale and pace of the current AI investment boom , accompanied by expectations of large productivity returns, resemble those of previous ones, underscoring potential recession risks in the near future.”
The BIS estimates that the five largest companies are set to spend more than a trillion dollars on AI-related capital expenditures in 2026 – and given inflationary conditions and the fact that each rival is trying to outdo each other, this seems reasonable.
“These commitments are outpacing the earnings and free cash flow of these companies, leading some to issue debt to raise additional financing. This investment race may be driven in part by the perception that only a small number of players with superior technology will ultimately dominate market share.”
Intense competition risks overloading tech giants with “investment projects with uncertain returns, leaving all companies vulnerable if AI doesn’t deliver as expected.” This is because as competitive pressure drives costs higher and higher, the net economic surplus for the tech industry is shrinking and “could turn negative in adverse conditions.”
“Disappointment with yields could trigger a sudden pullback in financing and turn the boom in capital spending into a prolonged investment slump with potential repercussions on economic conditions,” the annual report continues.
The report also cites concerns about an impending “supply-side bottleneck” around issues such as electricity availability, chip shortages and internet congestion. AI data centers are already putting pressure on energy prices and input costs with “potential inflationary implications.”
“Looking ahead, these temporary shortages may also reinforce overinvestment , as companies try to lock in future capacity through long-term contracts that further expose them to any disappointments in demand.”
In the event of a sharp rise in inflation or a collapse in AI investments, the macroeconomic consequences could be amplified by “existing economic vulnerabilities.” Tightening policy rates to control inflation could trigger a “sharp decline in asset prices after a prolonged period of intense risk-taking, triggering disruptive macroeconomic headwinds.”
The “opacity” of AI funding exacerbates vulnerabilities as companies create a web of private arrangements – with circular financing – and the terms of data center leases are often not fully disclosed, the BIS says.
The background to all of this is that while companies running pilot projects report some efficiency gains at the employee level, few report noticeable productivity gains from AI projects that have entered production environments.
Although the press releases will range from very select to rare, I said I'd pass...because sometimes the editors hide.
