The Bank of England is expressing concern over the rising trend of financiers lending to data centers, fearing that it could create an AI bubble akin to the dot-com collapse of the early 2000s.
Bloomberg highlighted that the UK’s central bank is scrutinizing potential market risks associated with such lending, particularly if AI firms do not achieve their ambitious valuations. This scrutiny comes amid fears that a correction similar to the dot-com era might follow.
While the market for lending to data centers remains relatively small, it is expected to become a vital funding source as demand for AI-related services surges, with McKinsey & Co estimating that around $6.7 trillion will be necessary by 2030 to satisfy this demand.
AI Investment
Source: Christophe Barraud
Bloomberg reported that the investigation was prompted by the Bank of England’s observation of substantial fund transfers away from hiring and towards the construction of data centers.
With the limited availability of AI-native stocks and the unpreparedness of crypto tokenization for broad-scale adoption, data-center lending has emerged as a primary avenue for substantial investments in the AI sector.
Cautious of AI, Strict on Crypto
The findings from the Bank of England may indicate forthcoming regulatory constraints on these lending practices, which could affect returns and inhibit innovation in AI.
Additionally, UK crypto groups have criticized the Bank’s initiative to cap individual stablecoin investments, arguing that it is not only restrictive but also cumbersome to enforce.
While the Bank has indicated these restrictions won’t be permanent, UK financial institutions have started to impose their own measures, with around 40% of surveyed crypto investors noting that their banks have either blocked or delayed cryptocurrency transactions.
Concerns over Financial Stability due to Data Center Lending
The Bank of England views the increasing reliance on such lending practices as necessitating rigorous examination due to their potential consequences on financial stability.
“If the projected scale of debt-financing for AI ventures and associated energy infrastructure comes to fruition over this decade, risks to financial stability may escalate.”
