AI’s explosive growth is being fuelled by risky private credit bets. And global regulators fear the next financial crack may already be forming.
The artificial intelligence boom has found its favourite financier, and it is not traditional banking. It’s private credit- the sprawling, opaque world of non-bank lenders now pouring billions into AI infrastructure, datacentres, and hyperscale expansion.
That arrangement has looked clever for a while- cheap capital chasing the hottest sector on earth usually does. But global regulators are now beginning to sound uneasy.
This week, the Financial Stability Board (FSB), the international watchdog created after the 2008 financial crisis, warned that the private credit industry’s growing AI obsession can become a critical fault line in global finance.
The concern is not just that AI valuations are inflated- that debate is already exhausted. The deeper issue is structural. Private credit firms operate outside the tighter regulatory scrutiny imposed on banks, yet they are increasingly financing some of the most capital-intensive bets in modern history.
AI is no longer mere software hype. It demands massive infrastructure and spending. That means enormous loans built on the assumption that demand for AI computing will continue exploding indefinitely.
History rarely rewards “indefinitely.”
The FSB specifically warned that a sharp correction in AI-related assets could trigger “sizeable credit losses.”
Even more interestingly, it pointed to electricity shortages as a potential catalyst. That detail matters because it reveals how fragile this supposedly futuristic boom really is. The AI economy increasingly depends on something painfully old-world: power grids.
There is also an irony here.
After 2008, regulators spent years forcing banks to become safer and more conservative. Finance, as it always does, migrated elsewhere. Private credit turned into shadow banking, with better branding, i.e., less visibility, and lightly regulated, powered by institutional money seeking higher returns.
Now, AI has become the industry’s newest gold rush.
The problem with gold rushes is that everyone assumes they will be smart enough to leave before the collapse begins. They usually are not.
That doesn’t mean the AI bubble will burst tomorrow. The technology is real. The demand is real. However, financial manias are rarely built on fake ideas; they are built on real ideas inflated beyond economic gravity.
And right now, AI increasingly looks less like a technological revolution and more like a credit-fuelled one.
