BIS Warns of AI Bubble Risks: Valuations of core companies are at elevated levels, risk premiums have contracted significantly, and circular financing harbors hidden dangers.

The Bank for International Settlements (BIS) stated in its annual economic report that optimism around artificial intelligence (AI) has underpinned global growth and risk assets over the past year, accelerating semiconductor procurement, data center construction, and power infrastructure investment while keeping financial conditions loose. However, as AI investment scales up, risks are extending from stock market valuations to corporate bonds, private credit, and supply chain financing. The BIS warns that valuations of core AI companies are already at high levels, with the market’s implied long-term earnings growth rate significantly exceeding historical benchmarks. At the same time, risk premiums for large U.S. equities have narrowed notably, indicating that investors are receiving less risk compensation. If AI investment returns fall short of expectations, or if inflation forces interest rates to rise again, stock markets will face more intense revaluation pressure. The BIS also specifically noted that insufficient transparency in AI financing could amplify risks. Some chipmakers and cloud providers have formed "circular financing" through equity investments, long-term procurement commitments, computing power leasing, and data center sale-leaseback arrangements, with some assets potentially facing double-pledging risks. If equity markets adjust sharply, corporate credit risks will be reassessed, credit spreads may widen, and financing conditions could tighten further.