Reserve Bank of Australia Warns of AI Investment Bubble

The Reserve Bank of Australia warned in its biannual financial stability review that the nation remains vulnerable to global financial shocks, specifically highlighting the risk of a collapse in the artificial intelligence investment boom. The central bank noted that current AI growth is driven by opaque debt-financing and expectations of rapid earnings, meaning a shift in sentiment could lead to disorderly asset price corrections.

Other external threats identified by the bank include AI-facilitated cyber-attacks, global bond market sell-offs, and continuing conflicts in Ukraine and the Middle East. The bank indicated that threats to global financial stability continue to mount.

Despite these external pressures, the bank reported that Australian households are generally well-positioned to withstand falling property prices and rising interest rates. Current estimates show fewer than 1% of borrowers are in negative equity. The bank noted that a 20% crash in property prices would only impact approximately 5% of mortgages, as a strong labor market and significant equity buffers support loan servicing.