Central bankers warn AI boom risks painful repricing

At the European Central Bank's annual forum in Sintra, Portugal, which concludes today, economists and central bankers delivered pointed warnings that the artificial intelligence investment boom could end in a destabilizing market correction if returns fail to materialize on the timeline priced into equity markets.

A Dangerous Mismatch

Apollo Global Management ↘ 4.47% chief economist Torsten Sløk told attendees that equity markets "priced for instant earnings growth will face a painful repricing if the productivity hockey-stick takes five years rather than five months." In a research note published Monday, Sløk wrote that there are "no signs of profit margins rising outside the tech sector," arguing that heavily regulated industries including healthcare, banking, insurance, and energy face deep process re-engineering and data governance requirements that could delay structural productivity gains well beyond what the market currently projects.apollo

Sløk estimated that AI-related capital spending had already added one percentage point to U.S. GDP, inflating asset prices even as the return on investment remains uncertain for most of the economy. The combined capital expenditure tab for the largest hyperscalers now exceeds $600 billion for 2026, a 36% jump from the prior year, according to estimates compiled by Goldman Sachs The Goldman Sachs Group, Inc. ↘ 6.36% and CreditSights. Goldman Sachs Research expects cumulative AI-related spending from 2025 through 2030 to reach $5.3 trillion.investing+2

Central Bankers Sound the Alarm

The warnings extended beyond Wall Street economists. Federal Reserve Chairman Kevin Warsh, making his debut appearance at Sintra, called this "the biggest time of consequence to each of our economies, I think, in our lifetime," comparing it to the early days of the internet. Bank of Canada Governor Tiff Macklem cautioned that "the internet proved to be better than anybody imagined, created whole new businesses, but we still got the dotcom bubble."rte

Bank of England Deputy Governor Sarah Breeden noted that while AI infrastructure investment had initially been financed by large technology companies' cash flows and equity, "debt financing was rising rapidly, and in some new and complex ways," leading the Bank's Financial Policy Committee to conclude that "the financial stability consequences of any fall in AI-related asset prices could well increase."bankofengland

Echoes of Past Bubbles

The Bank for International Settlements reinforced the concerns with a report stating that "the scale and pace of the current AI investment boom accompanied by expectations of large productivity payoffs bear resemblance" to episodes including the British railway mania of the 1840s and the dotcom bust. University of Pennsylvania professor Itay Goldstein warned that AI-driven trading algorithms could "coordinate on a manipulative path of prices," creating bubbles and crashes with implications for financial stability.rte

Sløk framed the dilemma starkly: "If AI overdelivers, it will impact financial stability. If AI underdelivers, it will impact financial stability."rte