The AI investment boom is transforming the way companies finance their investments. Historically, leading IT firms have relied on their highly profitable operations to generate the cash flows needed to fund investments [1]. However, the scale of current and anticipated AI-related investment needs is now so vast that firms are seeking external sources of funding. They are therefore increasingly financing AI investment via debt, a shift that is not only reshaping corporate balance sheets but also raises important questions about credit standards and financial stability [2].
Private credit, in particular, is playing a rapidly increasing role in funding AI investments. The terms of private credit loans to AI-related companies do not differ markedly from those to companies in other sectors [3]. However, the sheer size of these actual and anticipated investments, combined with dwindling free cash flows in some cases, are testing the limits of expansion based on cash flows. The long-term viability of the AI investment surge depends on meeting the high expectations embedded in those investments, with a disconnect between debt pricing and equity valuations [4].
Failure to meet expectations could result in sharp corrections in both equity and debt markets. While AI may deliver a sustained boost to economic growth, it remains to be seen whether this potential will be realised. The AI investment boom is smaller than previous investment booms, but its end could still be associated with a slowdown in GDP growth [5].
Sources
- BIS Bulletin No 120, 'Financing the AI boom: from cash flows to debt'
- Avalos, F, S Doerr and G Pinter (2025), 'The global drivers of private credit', BIS Quarterly Review, March
- PitchBook data, authors' calculations
- Kim, H and R Armstrong (2025), 'Can South Korea’s hot streak continue?', Financial Times Unhedged, 26 November
- US Census Bureau; US Bureau of Economic Analysis; Australian Bureau of Statistics; Statistics Canada; Japan Cabinet Office; authors’ calculations
