BASEL — The Bank for International Settlements (BIS) released its Annual Economic Report 2026 on June 29, 2026, warning that the rapid increase in artificial intelligence (AI) investment shares similarities with past speculative periods that resulted in economic downturns.

"The scale and pace of the current AI investment boom, accompanied by expectations of large productivity payoffs, bear resemblance to these precedents," the BIS report stated. "These episodes ended with an eventual reversal in investment, inducing economy-wide recessions." The report also indicated that intense competition among firms could lead to an over-commitment of resources. "The intense competition raises the risk of firms over-committing resources to investment projects with still uncertain returns, leaving all firms vulnerable to disappointments in AI payoffs," the report said.

The five largest hyperscalers are projected to spend more than $1 trillion on AI-related capital expenditure across 2025 and 2026 combined. AI currently accounts for nearly half of all investment-grade bond issuance and 87% of venture capital funding. Task-level studies show AI productivity gains of 20% to 50% in time savings.

Direct lending funds have quadrupled their lending to the AI and IT sectors over the past five years, with such loans representing about 15% of their portfolios. The BIS further noted that the terms of these deals are often poorly disclosed. "The terms of such deals are typically poorly disclosed, with risks of the same asset being pledged multiple times," the report said. Zhang Tao, BIS Asia-Pacific representative, stated that a correction could unwind much faster than previous banking crisis episodes.

The BIS report cautioned that a larger shock could trigger a widespread credit crunch. "A larger shock, whether from a renewed inflation surge or a sharp AI-led repricing, could trigger a more widespread credit crunch," the report said.