An analysis said the pace of the worldwide expansion of investment in artificial intelligence (AI) will peak this year. AI investment will continue next year, but the increase will not be as fast as this year.
According to the currency and credit policy report released by the Bank of Korea on the 10th, Bank of America, a major U.S. bank, forecast that global AI investment this year will rise 79% from a year earlier. However, it lowered the projected growth rate to 38% for next year and 16% for the year after. Bloomberg Intelligence, the economic research arm of the business magazine Bloomberg, also said global AI investment will increase 95% this year from the previous year, but the growth rate will retreat to 39% next year and 13% the year after.
The Bank of Korea (BOK) pointed to "strengthened profitability verification" as a risk factor for AI investment. The Bank of Korea (BOK) said, "While key AI models are driving corporations' sales to grow quickly, the prevailing view is that it will still take considerable time to generate stable profits." It added, "Profitability verification of AI investment has been strengthened," and said, "If demands for investment efficiency grow, this could act as a factor constraining corporations' future investment expansion."
It is also a problem that it is becoming harder to cover investment solely with internal resources, expanding reliance on external funding. As funding costs rise, investment flows become more sensitive to changes in financial conditions such as interest rate hikes.
The Bank of Korea (BOK) said, "Since the second half of last year, big tech companies have sharply increased corporate bond issuance," adding, "In the process, market wariness over credit risk has also grown, as seen in the rise of some corporations' credit default swap (CDS) premiums." A CDS premium is a fee akin to an insurance premium paid to recoup principal if a bond issuer defaults. A higher CDS premium means a higher default risk.
In particular, regarding Nvidia providing credit or funds to financially constrained firms to buy its own graphics processing units (GPUs), the Bank of Korea (BOK) said, "There are similarities to vendor financing during the dot-com bubble in the 1990s." Vendor financing is a method in which the seller provides credit or funds while urging customers to purchase its products. The seller's financial support then circulates back into sales in a circular structure.
The Bank of Korea (BOK) said, "While diversification of external funding methods is a natural change accompanying large-scale investment, approaches such as vendor financing can be a potential vulnerability."