AI industry faces risks from rapid investment boom and circular finance

The artificial intelligence (AI) industry is experiencing an intense investment boom characterized by aggressive competition among semiconductor manufacturers, hyperscalers, and AI developers. Global investment in AI infrastructure is projected to reach approximately $700 billion in 2026 and nearly $1 trillion in 2027. According to the Bank for International Settlements, global AI infrastructure investment has quadrupled in just three years since the boom began in 2023.

This rapid expansion is driven by a winner-take-all dynamic, leading companies to engage in heavy capital expenditure to secure market dominance. However, this trend carries inherent vulnerabilities. The industry is increasingly reliant on ‘circular finance’—complex private arrangements involving mutual equity investments, loans, and guarantees rather than traditional bank debt. While this facilitates rapid growth, it may exacerbate losses during a potential downturn.

Because much of the debt-funded investment is tied to specialized assets like Nvidia GPUs, data centers, and power infrastructure, a sudden drop in demand could lead to a mass liquidation of these assets at low prices. The current AI boom is marked by a close entanglement of real-economy overheating and financial speculation, creating a risk of endogenous instability.