Central banks don't usually sound alarms about specific technologies. When they do, it's worth paying attention.
This week, the Bank of England warned that a multi-trillion dollar spending boom in artificial intelligence infrastructure financed by debt risks unraveling given "materially stretched" stock market valuations.
That's not speculation from a tech blogger or a contrarian fund manager. That's a major central bank saying the financial plumbing underneath the AI revolution might be more fragile than it looks.
The Numbers Are Staggering
The Bank of England projects that approximately $5 trillion will be spent globally on AI infrastructure over the coming five years. Initially, Big Tech funded this build-out from their massive cash reserves. But that's changing fast.
The Bank now estimates that nearly half of the $5 trillion expected to be poured into AI infrastructure over the next five years will come from external financing, particularly through debt markets.
That shift matters enormously. When companies fund expansion with cash, a downturn hurts shareholders. When they fund it with debt, a downturn can cascade through the entire financial system.
Why This Feels Different (And Why It Might Not Be)
AI stocks have pushed some US stock valuation metrics to their highest level since the dot com bubble 25 years ago. Bank of England The comparisons are hard to ignore.
But there's a crucial difference this time. Most AI players today generate real earnings—a point emphasized by Governor Andrew Bailey, who stressed that the industry is not running purely on hope, even if not all companies will survive.
The Bank isn't predicting a crash. They're flagging a structural vulnerability. AI accounted for two-thirds of all gains in the S&P 500 this year and was credited with fueling half of U.S. economic growth in the first half of 2025.That concentration creates fragility.
The Contagion Risk
Here's what keeps regulators up at night. If material credit losses on AI lending were to occur, this could have spillovers to broader credit conditions.
It's not just about tech stocks falling. Household wealth would likely decline, consumer spending could contract, and lenders might pull back—not only from AI-focused companies but from corporate borrowers more generally.
The Bank pointed to early warning signs in credit default swaps of companies leaning on debt to fund their investments. Bloomberg Translation: the derivatives market is starting to price in higher default risk for AI-heavy borrowers.
Stage Three of Five
One investment strategist put it bluntly. "If you think of a bubble of about five stages, we're probably in stage three," said Joost van Leenders of Van Lanschot Kempen. "When you look at the fact that some of these companies are financing each other and buying each other's stocks, I think those are also signals of a bubble."
That circular dynamic—tech giants investing in each other, guaranteeing each other's debt, buying each other's chips—creates an interconnected system that could amplify a shock rather than absorb it.
What Happens Next
The AI revolution isn't going away. The technology works. The demand is real. But the financial structure supporting the build-out is increasingly leveraged, and if the projected scale of debt-financed AI infrastructure investment materializes over this decade, financial stability risks are likely to grow.
AI does not need to fail for markets to break; valuations simply need to fall.
That's the uncomfortable truth. We're not debating whether AI will transform industries—it already is. We're watching to see whether the financial architecture can handle a correction without taking the broader economy with it.
The Bank of England just said they're watching closely. So should we.
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