Regulators in the United Kingdom, the International Monetary Fund and the Bank for International Settlements have repeatedly warned that the rapid rise in AI-related investments could be forming a bubble.
Regulators warn of AI bubble
In Bangkok last week, the IMF said a correction in the AI sector could spark deleveraging and cause a “cataclysmic” impact on global finance.
The fund examined 14 recent deals and estimated that roughly $650 billion of debt and $300 billion of equity might be exposed to over-optimistic return expectations.
As ALEX BRUMMER, CITY EDITOR, noted, nobody can say they weren’t warned, with enforcers at the Bank of England, IMF, and Bank for International Settlements in Basle consistently alerting investors to the risks of an AI bubble, updated as recently as 09:27 BST, 21 October 2026.
Market fallout across continents
South Korea saw the debut of data-center pioneer Elice tumble 32 percent on its first day of trading in Seoul.
Bloomberg identified about six firms whose valuations have been cut sharply; Australia’s Firmus Grid and AirTrunk postponed IPOs, while British firm Nscale faced tough investor questions.
Bond yields on cloud-computing provider CoreWeave have surged to 15 percent, reflecting heightened risk perception.
Furthermore, the yield surge and valuation cuts are indicative of a broader trend where investors are becoming increasingly cautious about the prospects of AI-related companies, with some analysts describing the current situation as the longest losing streak in tech shares for almost two decades.
Investors turn to protection
To hedge against potential losses, market participants have bought credit-default swaps covering AI-heavy issuers.
Morgan Stanley reports that about $9 billion of CDS contracts now protect exposure to companies such as SpaceX and Nvidia.
Trading volumes for these swaps have risen sharply, and the premium for buying such insurance has increased.
Historical parallels and outlook
When the 2008 financial crisis began, early tremors emerged from smaller institutions like Northern Rock and Bear Stearns before the collapse of larger banks.
Credit-default swap activity, a hallmark of the 2008 turmoil, is now climbing again, indicating market anxiety is growing.
Authorities are also scrutinising credit exposure; Barclays is under investigation for possibly under-reporting private-credit risks.
The fly in the ointment is the 3.7 per cent rise in regular pay, a figure closely watched by interest rate setters at the Bank of England, who are fearful of second-round effects such as rising pay awards in response to an energy supply shock, a concern that shows the complexity of the current economic situation.
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