The Bank for International Settlements said in its latest quarterly assessment that the AI investment boom is being accompanied by a rapid build-up of leverage and hidden debt across financial markets. The institution said some of those risks have been accumulating beneath what still looks like a calm market surface. BIS pointed to highly leveraged hedge funds taking a deeper role in core financial markets, warning that a reversal in asset prices could tighten liquidity and amplify volatility. Frank Smets, the bank’s head of economic analysis and statistics, said cross-market leverage is a particular concern. He cited a recent case in which an AI-heavy hedge fund faced margin calls after asset valuations fell and was forced to transfer core equity positions to Citadel. The report also highlighted the growth of AI-linked debt. Private credit borrowing by technology companies rose from about $22 billion in 2010 to more than $1 trillion in 2025, with its share of the private credit market climbing from 22% to 44%. Including other loans, outstanding debt in the technology sector is now close to $2.5 trillion, according to the BIS assessment.