While the AI boom will change the world for the better, is the world financing that change wisely?The world has made up its mind about artificial intelligence (AI). Governments across the globe are setting up dedicated AI funds like India’s AI Mission, Singapore’s AI strategy, Saudi’s HUMAIN initiative, and the EU’s InvestAI programme. Companies are racing to put AI into everything from customer service to healthcare to manufacturing. Investors are also pouring money into Data centres, Chips, and AI companies faster than at any point since the 1990s Internet boom. The excitement is not irrational because AI genuinely works, and is already reshaping industries fundamentally.In June 2025, the Bank for International Settlements (BIS) , the central bank of central banks published its annual report with an unusually direct warning: AI valuations may have climbed beyond what current earnings justify; much of the investment is funded by borrowed money; and the physical infrastructure AI depends on is more fragile and concentrated than most realise. More recently in June 2026, the BIS sharpened that warning, flagging circular financing among hyperscalers like amazon, google or Microsoft and growing non-bank exposure. This brings forth a key question- whether this AI boom may turn into a global risk which deserves more attention than what it is getting.Is AI valued correctly?Some of the technology companies like Nvidia and Apple are mostly US based, make up a surprisingly large share of global stock market value, priced not on what they earn today but on what investors expect once AI is fully embedded in the economy. This gap is what some economists term as stretched valuations.Much of this investment rests on borrowed money or leveraged investing, in the BIS’s own words. Debt magnifies gains and losses, and when things go wrong, the damage spreads from the original investor to whoever lent the money, and then to whoever lent them money in turn, a dynamic seen before in the dot-com crash and the 2008 housing collapse. There is compounded by the concentration risk, with only one technology major- Nvidia being the only supplier of the chips, upon which almost all major AI development depends.The Financial Stability Board (FSB), an international body that monitors the global financial systems, has also highlighted the AI led financial stability implications which go beyond the financial institutions to manifest as a systemic risk. These can be traced back to four main channels: first-concentration risk-reliance on a few AI service providers, whose outages would ripple across institutions; second -herding i.e. a financial risk, as banks lean on similar models, correlating trading and lending; third -cyber risk and fourth -opaque model risks emanating from data quality and governance issues, complicating supervision.AI not immune to Geopolitical RisksAI may not just be the software which lives in the cloud, it uses highly concentrated physical infrastructure viz. massive data centres and semiconductors, whose manufacturing is clustered in a few locations in Taiwan, South Korea, Netherlands; using critical minerals sourced from politically sensitive regions. These industrial installations and in particular the data centres have enormous electricity and water consumption. The West Asian conflict has shown how regional instability candisrupt energy and shipping routes. Global AI ambitions related with productivity gains from AI models which themselves require enormous energy and power could be colliding with the new geo-political realities. Not to mention the risks amplified by U.S. chip export restrictions on China and the global dependence on Taiwan’s TSMC in an era of intensifying U.S.–China rivalry.For countries like India, the stakes are real and direct. India also shares this optimism and looks to benefit from AI-driven productivity in key sectors viz. healthcare, agriculture, and public services that would otherwise take decades. But, as in the past, when global markets have tumbled, emerging economies like India were the first to feel the hit with investments flowing out, currencies weakening and borrowing costs rising. In case of any AI led financial contagion, India should not expect to be spared just because it is not at the centre of the AI boom.AI potentially fuelling InflationCentral banks could be in a difficult spot going forward. The BIS argues they must stay focused on bringing inflation down, yet the AI boom itself is fuelling it: data centres push up electricity demand, competition for AI talent lifts tech salaries, and supply disruptions potentially causing chip shortages which raises input costs. The AI led productivity gains may not alone be deflationary and therefore in pursuit of reigning inflation, a rate hike could deflate the AI boom built on leverage. In contrast, a rate cut, could only perpetuate the underlying inflationary forces.Clearly, the tools Central Banks across the world had, were not built for a moment when one technology could reshape prices and markets at once and at large. A few, including the RBI, have begun exploring AI-specific stress-testing, but such efforts remain early-stage and voluntary.Conclusion and Way ForwardNone of this argues against AI and its continued funding. Definitely, AI is transforming productivity, healthcare, education, and growth unlike any other technology before it. Even the warnings by BIS or the FSB are not against innovation; they are against unmitigated infrastructure spending which in case of below- expected returns could potentially trigger a financial crisis. Research shows revolutionary technologies can create instability when expectations outrun fundamentals and leverage runs high.The lesson is not to slow AI, but to build the right foundations around it: stronger financial oversight, diversified supply chains, resilient energy infrastructure, and monetary policy anchored to price stability rather than market enthusiasm. India appears to be moving in that direction, with a proposed law built on graded, risk-based rules and stricter obligations for AI in banking and finance. Technological progress does not eliminate economic risk — it often just reshapes it. The world is right to invest in AI. But this revolution’s success depends not only on smarter algorithms, but on whether governments, regulators, and investors ensure today’s AI boom becomes a foundation for long-term prosperity, not the source of tomorrow’s crisis.Jindal is a Senior Faculty and an Economist; Singh studies Economics at Shiv Nadar UniversityPublished on July 24, 2026