The Japan Times - BIS flags debt and profitability risks in AI-driven market rally

The Bank for International Settlements warned on September 14 that the AI-driven rise in global equities was becoming more vulnerable as investors questioned future profits and large US technology companies increased their borrowing.

In a new report, the organisation said caution about the returns on AI investment was growing after a rally that had lifted world stock markets for two years. Its head of economic analysis, Frank Smets, presented the findings to reporters on September 11, ahead of publication.

Smets said AI investment had supported both equity markets and the global economy’s resilience over the previous year. Whether that support would continue was increasingly uncertain, particularly if bond yields kept rising.

AI-related shares fell sharply on September 14 after senior industry executives warned over the weekend that development should slow to prevent the technology from creating threats to humanity. The BIS also identified geopolitical tensions, volatile energy costs and pressure on public finances as features of an uncertain economic backdrop.

The report said the hundreds of billions of dollars of debt issued by AI businesses could be contributing to higher government bond yields, alongside existing concerns over sustainable public borrowing. Smets connected recent bond-market pressure with fiscal fragility and greater economic uncertainty.

He nevertheless said there were no overall signs of market stress. Investors’ willingness to take risk had remained resilient in recent months, despite the pressures. The BIS, an organisation serving central banks, has repeatedly warned about global indebtedness and possible equity-market bubbles.

Smets echoed financial stability concerns raised the previous week by BIS chief Pablo Hernandez de Cos. He identified rapidly increasing debt and leverage as a particular issue in AI financing, noting that some transactions are difficult to assess, kept off balance sheets or involve circular arrangements.

A study of private funding found aggregate technology-company borrowing had increased from about $22 billion in 2010 to more than $1 trillion in 2025. Its share of total private credit rose from 22% to 44% over that period. Outstanding technology loans across all types of lending totalled almost $2.5 trillion.

Another BIS study used AI to examine thousands of central bank reports and speeches. It found more frequent references to a wider range of core inflation measures, which exclude swings in energy prices. The report said the increasingly complex language reflected economic changes but could make central bank communication harder for the public to understand.

S.Fujimoto--JT