AI optimism has supported global growth and risk assets over the past year, the Bank for International Settlements (BIS, global central bank forum) said in its annual economic report on Aug. 18, helping drive faster semiconductor purchases, data center construction and power infrastructure investment while keeping financial conditions loose. The BIS warned that as AI investment expands, the risk is spreading from equity valuations into corporate bonds, private credit and supply-chain finance. It said core AI companies are already trading at elevated valuations, with market-implied long-term earnings growth well above historical benchmarks, while the equity risk premium on large U.S. stocks has narrowed sharply, reducing the compensation investors receive for taking risk. The report added that if AI investment returns fall short of expectations, or if inflation pushes interest rates higher again, equities could face a more severe repricing. It also flagged weak transparency in AI financing, saying some chipmakers and cloud providers are using equity investments, long-term purchase commitments, computing-power leasing and data center sale-and-leaseback arrangements in ways that can create circular financing and raise the possibility of multiple pledges on the same assets. A sharp equity-market correction could then trigger a reassessment of corporate credit risk, widen credit spreads and tighten financing conditions further.