The Bank of England warns of catastrophic consequences as the AI debt bubble reaches its breaking point.
Even the Bank of England (BoE) is now sounding the alarm — the explosive rise in financing for artificial intelligence (AI) could trigger serious consequences for financial stability as the industry approaches the limits of its debt sustainability.
The phenomenon, combining massive spending on AI infrastructure with surging public and private debt, is being closely monitored by central banks and financial regulators worldwide.
The need for AI funding soars to $800 billion
In recent weeks, analysis of AI infrastructure spending has revealed that the industry will need $800 billion in financing by the end of the decade.
This demand is expected to be met primarily through debt — particularly private debt — as public markets gradually withdraw from AI funding.
However, the latest data show that the AI debt bubble has already expanded into corporate debt across the sector.
AI companies now represent 14% of the Investment Grade Index (IG Index) with total debt reaching $1.2 trillion, surpassing the banking sector.
New records in AI debt
This week, Oracle announced two historic debt deals that push the bubble even higher.
The company plans to raise $38 billion to finance data center infrastructure in partnership with JPMorgan and Mitsubishi.
The deal includes two major credit facilities dedicated to projects in Texas and Wisconsin, with Wells Fargo, BNP Paribas, Goldman Sachs, and Sumitomo also participating.
Vantage Data Centers is developing these projects to support the needs of Oracle and OpenAI, aiming to build the infrastructure required for AI expansion.
Oracle’s overall AI infrastructure project, dubbed “Stargate” and valued at $500 billion, is raising concerns about the risks of extreme leverage.
Oracle and JPMorgan at the frontline of the debt bubble
It is worth noting that JPMorgan, which is financing this deal, had already warned last month about the risks of over-leverage in technology.
JPMorgan’s head of market strategy, Michael Cembalest, in his Eye on the Market report, pointed out that Oracle has broken the self-financing pattern previously followed by major tech players — a move that could disrupt the entire capital cycle of the technology sector.
According to Cembalest, Oracle is ready to take on hundreds of billions of dollars in debt to capture a share of the AI infrastructure market, upending the established oligopoly that has dominated until now.
A widening debt bubble
The debt bubble is not limited to tech giants like Oracle.
Just weeks ago, Meta announced a $29 billion issuance in debt and equity to expand its data center network — and other tech companies are following the same path.
Pimco, one of the world’s largest investment management firms, has already poured huge sums into AI-related debt, purchasing $18 billion of Meta’s bonds, which have yielded $2 billion in paper profits.
Pimco has reportedly begun quietly selling part of these bonds while maintaining control of the market to avoid disruption.
This trend has now spread into the “junk bond” sector, with TeraWulf — a cryptocurrency mining company turned AI infrastructure provider — issuing $3.2 billion in bonds backed by Google.
What the Bank of England fears
Amid this explosive growth, the Bank of England has begun closely monitoring the links between AI debt and the broader financial system, particularly as concerns mount over the sustainability of this debt.
In its latest report, the Bank warns that the surging valuations of AI companies could lead to a sharp market correction if expectations around AI’s capabilities turn less optimistic.
The BoE has already acknowledged the risks to financial stability, expressing concern over banks’ exposure — both directly, through lending to AI firms, and indirectly, via loans and credit facilities to private equity and financial intermediaries funding AI projects.
Implications
The Bank of England notes that if the projected scale of AI debt-funded investment materializes, the risks to financial stability will intensify.
Banks would be directly exposed through their credit portfolios to AI-related firms, and indirectly through their financing of private credit funds and other financial structures.
The Bank has already warned that AI-related debt issuance and the restructuring of technology investments, combined with the public sector’s limited ability to meet the industry’s growing demands, could lead to dangerous financial instability.
www.bankingnews.gr
The phenomenon, combining massive spending on AI infrastructure with surging public and private debt, is being closely monitored by central banks and financial regulators worldwide.
The need for AI funding soars to $800 billion
In recent weeks, analysis of AI infrastructure spending has revealed that the industry will need $800 billion in financing by the end of the decade.
This demand is expected to be met primarily through debt — particularly private debt — as public markets gradually withdraw from AI funding.
However, the latest data show that the AI debt bubble has already expanded into corporate debt across the sector.
AI companies now represent 14% of the Investment Grade Index (IG Index) with total debt reaching $1.2 trillion, surpassing the banking sector.
New records in AI debt
This week, Oracle announced two historic debt deals that push the bubble even higher.
The company plans to raise $38 billion to finance data center infrastructure in partnership with JPMorgan and Mitsubishi.
The deal includes two major credit facilities dedicated to projects in Texas and Wisconsin, with Wells Fargo, BNP Paribas, Goldman Sachs, and Sumitomo also participating.
Vantage Data Centers is developing these projects to support the needs of Oracle and OpenAI, aiming to build the infrastructure required for AI expansion.
Oracle’s overall AI infrastructure project, dubbed “Stargate” and valued at $500 billion, is raising concerns about the risks of extreme leverage.
Oracle and JPMorgan at the frontline of the debt bubble
It is worth noting that JPMorgan, which is financing this deal, had already warned last month about the risks of over-leverage in technology.
JPMorgan’s head of market strategy, Michael Cembalest, in his Eye on the Market report, pointed out that Oracle has broken the self-financing pattern previously followed by major tech players — a move that could disrupt the entire capital cycle of the technology sector.
According to Cembalest, Oracle is ready to take on hundreds of billions of dollars in debt to capture a share of the AI infrastructure market, upending the established oligopoly that has dominated until now.
A widening debt bubble
The debt bubble is not limited to tech giants like Oracle.
Just weeks ago, Meta announced a $29 billion issuance in debt and equity to expand its data center network — and other tech companies are following the same path.
Pimco, one of the world’s largest investment management firms, has already poured huge sums into AI-related debt, purchasing $18 billion of Meta’s bonds, which have yielded $2 billion in paper profits.
Pimco has reportedly begun quietly selling part of these bonds while maintaining control of the market to avoid disruption.
This trend has now spread into the “junk bond” sector, with TeraWulf — a cryptocurrency mining company turned AI infrastructure provider — issuing $3.2 billion in bonds backed by Google.
What the Bank of England fears
Amid this explosive growth, the Bank of England has begun closely monitoring the links between AI debt and the broader financial system, particularly as concerns mount over the sustainability of this debt.
In its latest report, the Bank warns that the surging valuations of AI companies could lead to a sharp market correction if expectations around AI’s capabilities turn less optimistic.
The BoE has already acknowledged the risks to financial stability, expressing concern over banks’ exposure — both directly, through lending to AI firms, and indirectly, via loans and credit facilities to private equity and financial intermediaries funding AI projects.
Implications
The Bank of England notes that if the projected scale of AI debt-funded investment materializes, the risks to financial stability will intensify.
Banks would be directly exposed through their credit portfolios to AI-related firms, and indirectly through their financing of private credit funds and other financial structures.
The Bank has already warned that AI-related debt issuance and the restructuring of technology investments, combined with the public sector’s limited ability to meet the industry’s growing demands, could lead to dangerous financial instability.
www.bankingnews.gr
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