Markets lose safety net as AI boom continues

What happened: The AI boom, fueled by excessive spending on data centers and opaque transactions, has sparked warnings from central bankers about potential global financial risks. The Bank for International Settlements (BIS) cautioned that this could lead to a market crash and recession, similar to past tech bubbles. Veteran investor Jeremy Grantham echoed these concerns, labeling the U.S. stock market as the most expensive in history. Meanwhile, SoftBank's attempt to borrow $6B against its OpenAI stake backfired as shares plunged 9.7%, indicating a possible slowdown in the AI boom.

Market impact: The AI sector, particularly tech stocks, has been significantly affected. Companies heavily invested in AI, like Nvidia and Oracle, have seen increased borrowing activity, while SpaceX's upcoming $20B bond sale signals growing leverage in the industry. The AI boom has also driven global growth forecasts higher, with Bank of America upgrading its 2026 and 2027 growth projections. However, this optimism is tempered by concerns about overvaluation and potential market crashes.

What to watch next: Investors should closely monitor AI-focused companies' earnings in the coming quarters to gauge the sustainability of their growth. Upcoming economic data releases, such as GDP growth rates and inflation figures, will provide insights into the broader impact of the AI boom on global economies. Additionally, regulatory decisions surrounding AI, particularly those related to data privacy and intellectual property, could significantly shape the narrative moving forward.