Fortress, BIS warn of rising risks in AI credit boom

As hundreds of billions of dollars flow into artificial intelligence infrastructure, two prominent voices in global finance are sounding alarms about the risks building beneath the surface of the AI credit boom.

Fortress Investment Group co-CEO Jack Neumark on Monday cautioned private credit lenders against rushing into AI-related deals driven by fear of missing out. Speaking at Milken's Canada summit, Neumark argued that the economics of lending to data centers and other AI infrastructure are fundamentally different from equity investing. Credit investors receive a largely fixed return if the technology succeeds, while bearing full exposure to falling asset values — potentially trapping them in illiquid positions if things go wrong.bloomberg

Fortress, which manages about $55 billion in assets, joins a growing chorus of institutions warning that enthusiasm for AI may be outpacing prudent risk assessment in credit markets.bloomberg

BIS Flags Systemic Vulnerabilities

Separately, the Bank for International Settlements warned that the AI-linked rally that has lifted global stock markets over the past two years is showing growing signs of vulnerability. Frank Smets, the BIS's head of economic analysis, said investors were becoming increasingly cautious about the profitability of future AI investments as leverage among major U.S. technology firms continued to rise.cryptobriefing

The BIS flagged opaque, off-balance-sheet financing arrangements and what it described as "circular" funding structures among AI firms. Technology companies' aggregate borrowing rose from about $22 billion, or 22% of private credit, in 2010 to more than $1 trillion, or 44%, by 2025, according to the BIS report.cryptobriefing

The warning came as AI-linked stocks fell sharply after several leading AI executives called for a slower pace of development.cryptobriefing

Echoes of Past Crises

Morgan Stanley ↘ 3.64% estimates that AI-related debt issuance will reach $570 billion this year, fueled by a competitive race among Big Tech firms over data center investments. Even well-capitalized technology giants are now issuing corporate bonds and turning to project financing, private loans, securitization, and funding through special purpose vehicles.chosun

Credit default swap prices on Big Tech bonds are rising, reflecting growing market concern about default risks. The Chosun Ilbo noted that even AI leaders like OpenAI and Anthropic face mounting financial strain, with underwriters reportedly working to secure investment-grade credit ratings ahead of potential public offerings despite heavy cash burn.chosun

The pattern — rising asset prices supported by expanding credit, with debt obligations that outlast the underlying technology cycles — has drawn comparisons to previous financial crises. GPU hardware becomes obsolete in one to two years, AI models evolve every few months, and companies leasing data centers typically sign agreements of one to six years, while the infrastructure loans and construction contracts span a decade or more.chosun