The Bank for International Settlements has issued a stark warning about the AI spending boom creating broader market risks, as reported in its 2026 Annual Economic Report. The central bank body revealed that the five largest U.S. hyperscalers are set to spend more than $1 trillion on AI-related capex across 2025 and 2026, with these plans moving faster than earnings and free cash flow. According to the BIS report, AI capex is racing ahead of cash flow, raising debt and credit concerns across the global technology sector. The bank emphasized that a reversal of AI optimism could likewise have major financial consequences, with the current wave of AI optimism carrying risks of overheating similar to historical speculative excesses from the railway mania of the 1840s to the dotcom bubble of the late 1990s. The BIS noted that strong AI demand helped the world economy hold up in 2025, but warned that a change in investor mood could expose debt across the AI supply chain. Market strategist Andrew Freris of Ecognosis Advisory shares these concerns, warning that AI optimism has overshadowed weak fundamentals and questioning whether major market leaders have delivered profits that warrant their lofty valuations. As per The Economic Times, Freris noted that the earnings growth of the SPX—the most important stock—for 2025 had no earnings at all, with the first quarter continuing to have losses.
DBS Bank reports that the $1 trillion-plus annual AI capex 'arms race' is quietly powering a broad capex supercycle that reaches far beyond chips, into energy, infrastructure, networking hardware and new 'safe haven' asset classes. The bank notes that combined capex at Alphabet, Amazon, Meta and Microsoft has surged about 200% since the launch of ChatGPT, with 2026 guidance lifting to around $725 billion, nearly double 2025 levels. Beyond commercial cloud demand, governments are racing to build 'sovereign AI' as they treat AI infrastructure and semiconductor capability as strategic national assets, with McKinsey estimating a $500–600 billion total addressable market for sovereign AI by 2030. Semiconductor manufacturers and designers have become 'the primary gatekeeper of the AI era,' capturing roughly 60% of total data-centre capex as hyperscalers race to assemble massive compute clusters, according to DBS Bank. These capital flows are 'funnelled directly through foundries like TSMC,' ensuring that as long as hyperscaler capex keeps rising, the broader semiconductor ecosystem remains 'the single largest beneficiary.'
The closure of the Strait of Hormuz triggered an energy supply crisis that has posed a renewed threat to the global outlook, according to the BIS Annual Economic Report released on Sunday. Despite signs of easing geopolitical tensions and a significant drop in oil prices, the disruption's impact may linger, as reported by Financial Post. Global headline inflation picked up shortly after the Middle East conflict and prices of plastics and fertilizers, which are key materials, rose by 30 and 50 per cent respectively. BIS General Manager Pablo Hernández de Cos said at a press conference that repairing damaged facilities impacted by the Middle East conflict and normalizing shipping traffic will take time, which could complicate and delay the ramp-up of oil output. Recent years have seen roughly 90% of oil and gas capex directed at replacing declining output from existing fields and only 10% devoted to expanding supply, underscoring the need to rebuild longer-term reserves through higher exploration and greenfield activity. DBS Bank links this directly to AI: soaring power and electricity demand from data-centre construction, plus a 'return of energy security,' is expected to support both traditional hydrocarbons and renewables, as well as storage, grid networks and nuclear power.
Business Standard editorial warns that AI is no longer just a technology story. It has become a macro-financial one, with extraordinary investment flowing into data centres, chips, infrastructure and AI-linked companies. The editorial emphasizes that this boom could create risks through concentrated valuations, debt-funded capital expenditure, pressure on electricity and other infrastructure, and volatility in financial markets. The lesson from earlier technology cycles is that productivity gains may be real, but exuberance can still produce instability. Regulators must, therefore, monitor AI's financial channels with the same seriousness with which they track credit, liquidity and currency risks. The editorial stresses that trust is not a mood; it's a design problem, highlighting that data platforms cannot ask citizens to trust them unless privacy and accuracy are designed into them. Financial boards need independence, not old habits of patronage, and trade agreements require credible rules that convert trust into working systems.
Despite his concerns over global markets, Andrew Freris of Ecognosis Advisory continues to see opportunities across Asia, though he believes even some of the region's strongest performers are increasingly riding the AI investment wave. Taiwan and South Korea have delivered exceptional returns, while Singapore and Japan have also posted relatively strong performances, according to The Economic Times. However, Freris questioned whether massive AI spending plans will ultimately generate sufficient demand, noting that Korea has joined the dance with $1 trillion of spending on artificial intelligence investments, but they have not told us who is going to buy the products that $1 trillion is going to produce. Among Asian markets, Japan offers one of the most balanced investment opportunities, as cited by The Economic Times. Freris highlighted Japan's relatively healthy economy, disciplined monetary policy, and increasing defence expenditure as supportive factors, stating that Japan has a reasonably good economy, a safe central bank that is going to increase interest rates because they do not like inflation, and this is likely to boost the yen a little. He also noted that Japan is spending more overall, but they have not gone crazy on artificial intelligence, and that is important.
The BIS urged policymakers to act now and prioritize price stability, ensure fiscal sustainability, coordinate and strengthen oversight beyond the banking sector and pursue structural reforms, as reported by Financial Post. De Cos emphasized that the BIS' message was one of urgency in terms of the need to bring down debt levels in key economies, noting that today debt is high and this is financed through non-bank financial intermediaries. The latest report emphasizes that "policymakers must act now" as delay will only make the necessary adjustments more costly and increase the chance of difficult trade-offs in the future. The BIS concluded that by addressing these challenges today, we can help to safeguard the stability of the global economy in the years to come. In its capacity advising global central banks, the BIS said that "a strict focus on monetary discipline remains essential," ensuring that inflation expectations don't become unhinged on the back of recent energy price spikes, with officials not shirking from raising interest rates if needed even if that harms growth in the short term. According to de Cos' recent speech, these challenges call for "a firm commitment to price stability, rebuilding fiscal buffers, congruent regulation and temporary, targeted and easily reversible liquidity backstops." The BIS emphasized that addressing these challenges will require decisive action across monetary, fiscal and regulatory policies as well as continued international cooperation.
