The Bank of England is warning that the AI investment boom is becoming increasingly intertwined with financial markets, raising the risk that a disappointment in AI earnings or adoption could trigger a much sharper market correction.
In its latest Financial Policy Committee record, the central bank said AI-related investment is being financed with rapidly increasing amounts of debt, while high valuations remain heavily dependent on expectations for future earnings and productivity gains.
The concern is not that AI spending suddenly stops. It is that debt, leverage and concentrated positioning could amplify losses if investors begin questioning whether current spending levels can generate the returns now priced into markets.
AI Debt Is Becoming a Financial-Stability Issue
The Bank of England said global AI-related debt issuance has surged during 2026 and is expected to remain on a strong upward trajectory.
As more AI infrastructure is financed through bonds, private credit and other borrowing, a growing number of investors become exposed to the same underlying assumptions about data-center demand, GPU utilization and AI revenue.
That fits the broader shift toward debt-funded AI infrastructure, where cloud providers and data-center operators are borrowing billions before their projects generate meaningful cash flow.
The Bank also highlighted the opacity of some financing structures and what it called “circular arrangements”, which can make it harder for investors to assess the true concentration of risk.
July’s AI Selloff Already Showed the Mechanism
The warning is not entirely theoretical.
AI and semiconductor stocks fell sharply in July, and the Bank said some leveraged investors were forced to unwind positions as volatility increased. Those trades amplified the decline through deleveraging and portfolio rebalancing, although the stress did not spread into core financial markets.
That is similar to the risk highlighted in recent analysis of what could actually burst an AI bubble: the critical trigger may not be falling AI usage, but revenue failing to keep pace with infrastructure costs and investor expectations.
Michael Burry has also recently increased his bearish exposure through options, betting that an AI stock reversal could arrive sooner than expected.
