Bank of England Probes AI Data Center Lending Amid Financial Stability Fears

The Bank of England (BoE) has initiated an investigation into the rapid increase in lending for artificial intelligence (AI) data centers, raising alarms over potential financial stability risks. According to sources briefed on the discussions, the central bank is examining the growing connections between AI companies and the financial industry, particularly as spending shifts from hiring to expensive data center construction.

The BoE cautioned that inflated valuations in the AI sector could become a source of market instability if investor sentiment changes. In a blog post, it stated: "If the projected scale of debt-financed AI and associated energy infrastructure investment materializes over this decade, financial stability risks are likely to grow." Financial institutions are at risk from both direct loans to AI companies and credit extended to funds or institutions linked to the sector.

McKinsey & Co. estimates that global investors will need approximately $5.2 trillion to $6.7 trillion by 2030 to meet AI infrastructure demands. Currently, bank lending for early projects is modest, with much funded by equity, but this is expected to change. For instance, data center–related securitized loans were valued at about $49 billion as of August, according to Bank of America.

Notable deals include Meta securing around $30 billion in loans for a data center in Louisiana, which is set to be the largest private capital agreement in history, with Meta retaining only 20% ownership. Additionally, JPMorgan and Mitsubishi UFJ are leading a lending deal worth over $22 billion for Vantage Data Centers' expansion. The BoE is also scrutinizing interconnections between key AI players, such as Nvidia's commitment of up to $100 billion to support OpenAI's data center growth, though this has faced criticism for being "circular."

The investigation was prompted by concerns that the AI market could face a correction similar to the dot-com bubble, as no technology has attracted such rapid investment without proven profitability. Industry leaders continue pouring money into AI, driven by fear of being overtaken by competitors, but the BoE aims to understand the depth of these financial trends and may consider regulatory actions to mitigate risks.