The Bank of England is actively investigating the growing trend of financiers lending to data centers as a speculative strategy tied to the future of Artificial Intelligence (AI), according to Bloomberg.
The UK's central bank has already been examining potential market risks that could emerge if AI companies fail to meet their ambitious valuations. It has cautioned that a significant number of these companies could experience a sharp decline, drawing parallels to the dot-com bubble of the early 2000s.
The current focus extends to exploring the intricate relationship between AI companies and the financial institutions looking to place substantial bets within the AI market, Bloomberg reported on Friday.
While lending to data centers currently represents a niche market, it is anticipated to become a critical source of funding. McKinsey & Company estimated in April that approximately $6.7 trillion will be required by 2030 to meet the escalating demand for powering AI technologies.
Bloomberg noted that the investigation was initiated after the Bank of England observed a discernible shift in funds, moving away from staff hiring towards investments in the construction of data centers, involving billions of dollars.
With a limited number of AI-native stocks available and the large-scale tokenization of private AI stocks not yet mature, lending to data centers has emerged as one of the few avenues for significant investment in the AI sector.
Regulatory Scrutiny: AI vs. Crypto
The Bank of England's probe suggests that this data center lending strategy may face future regulatory limitations, which could potentially impact returns and slow down the pace of AI innovation.
In parallel, UK crypto groups have voiced strong opposition to the Bank of England's proposal to cap individual stablecoin holdings. The proposed limit ranges between 10,000 British pounds ($13,310) and 20,000 pounds ($26,620). Critics argue that this measure is not only restrictive but also poses significant implementation challenges and costs.
Although the Bank of England stated that these stablecoin restrictions would not be permanent, UK banks have independently introduced their own measures. Approximately 40% of surveyed crypto investors reported that their banks had either blocked or delayed payments to crypto providers.
Financial Stability Concerns from Data Center Lending
The Bank of England maintains that these emerging lending practices warrant thorough examination due to their potential implications for overall financial stability.
“If the projected scale of debt-financed AI and associated energy infrastructure investment materializes over this decade, financial stability risks are likely to grow,” the bank stated on Friday.
“Banks would be exposed to this directly through their credit exposures to AI companies, as well as indirectly through their provision of loans and credit facilities to private credit funds and other financial institutions which are exposed to AI-impacted asset prices.”