A trillion dollars, and the cashflow to match it isn’t there
The Bank for International Settlements, the central bank for the world’s central banks, does not do hype. So when it used its annual economic report on 2 July to warn that the AI investment surge “could prove unsustainable if supply bottlenecks restrain production”, markets should pay attention. The RBNZ is a BIS member. This is not a fringe commentator calling a top.
The number anchoring the concern is stark. The five largest hyperscalers, AWS, Microsoft Azure, Google Cloud, Meta and Oracle, are on track to spend more than US$1 trillion on AI-related capex across 2025 and 2026, already outpacing their combined earnings and free cashflow. The BIS also warned that “liquidity in core bond markets may be more fragile due to stretched asset valuations and investor complacency”, noting that AI financing is increasingly leveraged.
The cracks are already showing
This lands into a market that has run hot, with the Nasdaq up 12% year-to-date on AI stocks. But the wobbles have started. In late June, Oracle and cloud-computing peers had their worst week since the dot-com bust, shares down 19% in five days. The five biggest companies on Wall Street are now worth a combined US$18 trillion, almost the size of China’s entire economy.
Itay Goldstein, a finance professor at the University of Pennsylvania’s Wharton School, told RNZ on 27 June that “there are many indications that we are in a bubble. It seems likely that there is overpricing”. Brandes Investment Partners director Brent Fredberg was blunter, saying “the market is very skittish”. The structural worry is circular financing, where big tech invests in AI startups that then buy big tech’s own products, and a shift from share buybacks to debt-funded buildouts.
Why this reaches your KiwiSaver
None of this is abstract for New Zealanders. NZ holds roughly $140 billion in KiwiSaver, with about 30% invested in US shares. A serious Wall Street correction flows straight into ordinary retirement balances, and the tightly interconnected nature of the big tech ecosystem raises the odds of “a domino effect” if it turns.
The catch is, you can’t build your way out either
Here is the trap for NZ firms. If the boom busts, savings take the hit. But if businesses try to reduce dependence on offshore hyperscalers by building AI capability locally, they run into an electricity wall. BERL’s June 2026 analysis found a single AI GPU server costs NZD $300,000 to $700,000, with racks running $1.5 to $3.5 million in hardware, and $150,000 to $300,000 a year just in power to run them. NZ electricity sits at USD $0.24 per kWh, above the OECD and world average.
BERL’s verdict is unsentimental. Running compute-intensive workloads locally “may not deliver the savings needed to justify the infrastructure investment required”, leaving enterprises “stuck either paying high costs in tokens or high costs for internal infrastructure”. There is no cheap door.
A grid already under pressure
And the domestic cost picture is getting worse, not better. Household electricity rose 11.7% in the March 2026 quarter year-on-year, driven by network charges to fund infrastructure, even as renewables hit 94.5% of generation. Demand is climbing too, with consumption up 2.2% and industrial use up 4.8%. Into that tightening grid comes the fast-tracked $3.4 billion Datagrid Southland data centre, consuming 280 megawatts, roughly a major city’s entire draw.
Auckland University’s Ulrich Speidel has warned that a project of that scale “will require new generation capacity, with costs falling to consumers through higher power bills”, while questioning the local payoff given the compute “will largely work for overseas parties”. MBIE, for its part, published a June consultation on a proposed reliability obligation to manage dry-year risk, a quiet acknowledgement that winter supply is already stretched.
The double bind
The BIS is not calling a crash. It is saying the ingredients, stretched valuations, leveraged financing, power bottlenecks and complacency, are assembling. The dot-com era offers the optimistic read, where the bust wrote off fortunes but left the fibre that powered the next decade. The pessimistic read is that circular, debt-funded financing amplifies any correction into something systemic. Either way, the binding constraint is the same both globally and at home, and it is electricity. For NZ businesses, that means exposure on the way up through overpriced infrastructure, and exposure on the way down through KiwiSaver. There is no side of this trade that comes cheap.
Sources
- Bank of International Settlements warns AI investment boom may bust – Stock Takes (2026-07-02)
- ‘We are in a bubble’: Experts warn of historic AI bust risk (2026-06-27)
- AI: A new world struggles to be born (2026-06-24)
- Could the NZ economy weather an AI-fuelled global market crash?
- A new AI report is shocking – but not to the experts