AI Capex Boom Could Turn Into Investment Bust, BIS Warns
Annual report says hyperscalers’ trillion-dollar spending race could leave firms exposed if AI payoffs disappoint.
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[Image source: Pankaj Kirdatt/MITSMR Middle East]
The global race to build artificial intelligence infrastructure could become a prolonged investment bust if companies spend too far ahead of demand and the expected productivity gains fail to arrive, the Bank for International Settlements (BIS) has warned.
In its Annual Economic Report 2026, the BIS said AI could raise productivity over the coming decade. Task-level studies often show time savings of 20% to 50%, it said.
But gains across the wider economy are likely to be far smaller unless companies can adopt the technology at scale and weave it into everyday production.
The Basel-based body said the five largest hyperscalers are set to spend more than $1 trillion on AI-related capital expenditure across 2025 and 2026. Those commitments are already running ahead of earnings and free cash flow, forcing some firms to raise debt for additional financing.
Part of the race, the BIS said, is driven by the belief that only a small group of companies with the best technology will dominate the market. That could push firms to commit too much capital to projects whose returns are still uncertain.
“Disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust,” the report said.
The warning is not a dismissal of AI’s economic potential. The BIS said AI could be different from earlier general-purpose technologies if it eventually helps automate the production of knowledge itself. In that case, the effects on growth, income distribution and monetary policy could be far larger than those from earlier waves of automation.
But the report also set out a more difficult scenario. If automation shifts income from workers to capital owners, consumer demand could weaken even as productive capacity rises. Firms could then stop investing not because the technology fails, but because the market needed to reward further innovation has shrunk. The BIS called this a possible demand bottleneck.
The nearer-term risks are already visible. The BIS said the AI build-out is running into bottlenecks in electricity, advanced semiconductors and grid equipment. Demand for computing power is putting pressure on electricity prices and input costs, with possible spillovers to inflation.
The report compared the current AI boom with earlier investment manias, including canals in the 1830s, British railways in the 1840s, electrification in the late 1920s and the dotcom boom of the late 1990s. Each episode involved a genuine technological breakthrough. Each also drew in more capital than commercial returns could justify.
Financial markets could make the damage worse if AI optimism reverses. The BIS said a turn in AI-led investment could have major consequences because AI firms have taken on more leverage and become more visible in credit markets. It also warned that suppliers, including engineering, procurement and construction contractors, could be exposed if hyperscalers cut spending.
The global warning comes as signs of strain are emerging in the AI supply chain. Google has limited Meta’s use of its Gemini models after Meta sought more computing capacity than Google could provide, Reuters reported, citing the Financial Times. The shortfall disrupted and delayed some of Meta’s internal AI projects, according to the report.
For business leaders, the message is uncomfortable but useful. AI may still transform productivity, but the current spending race is not automatic proof of future returns.
