Mars Finance News, June 28 - The Bank for International Settlements (BIS) issued a stark warning in its annual economic report released on Sunday, stating that big tech companies' AI spending spree could end in a sustained "investment recession" and potentially impact financial markets and the global economy. The BIS noted that the five largest hyperscale cloud providers are expected to invest a combined total of over $1 trillion between 2025 and the end of 2026, but if tech industry returns fall short of expectations, investors could quickly tighten funding, turning the capital expenditure boom into a prolonged investment recession. The report cited historical precedents—canal construction in the 1830s, the British railway mania in the 1840s, and the dot-com bubble in the late 1990s—which share a common feature: "genuine technological breakthroughs attracted capital exceeding what commercial returns could support," ultimately ending in investment reversals and triggering economic downturns. Just as the BIS issued its warning, market frenzy signals are flashing intensely: SpaceX launched a $25 billion bond issuance shortly after a record-setting $86 billion IPO, with Allianz's chief investment officer pointing out this week that it marks the market entering "bubble territory"; tech companies, leveraging credit spreads near their lowest levels this century, are aggressively issuing debt in global credit markets to finance AI projects, with hundreds of billions of dollars pouring in. The BIS added that unlike previous cycles, households currently have higher equity exposure relative to wealth and income, meaning a significant correction in AI-related stocks would have a more severe impact on the real economy. Additionally, the large volume of bonds issued by AI companies to raise funds could also threaten financial stability. Meanwhile, energy disruptions caused by the near-closure of the Strait of Hormuz continue to fuel inflation, and central banks worldwide face multiple pressures from persistent inflation, the sustainability of AI investment, increased financial fragility, and deteriorating fiscal conditions.

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Bank for International Settlements warns: Market frenzy signals flash frequently, AI spending spree may end in persistent 'investment recession'.

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