Highlights

  • Jones told the AFR Super Summit that the dotcom boom of the late 1990s was principally equity financed, unlike the current AI cycle.
  • AI-related investment is now increasingly funded through debt in more opaque forms, raising questions about who bears losses.
  • Equity losses fall on shareholders who accepted the risk; debt losses can spread to lenders and across the financial system.
  • The October 2026 FSR said AI-related debt is less transparent and exposed to earnings disappointments, risking sharp market reactions.

The current technology investment boom has a structural difference from the dotcom era of the late 1990s that Reserve Bank Assistant Governor Brad Jones highlighted at the AFR Super Summit on 26 October 2026: this one is being financed differently. Where the late 1990s boom was, in his words, "principally equity financed," the current AI surge has a rising debt component, and that debt is taking increasingly opaque forms.

How the Two Eras Differ in Financing

Jones contrasted the late 1990s technology boom with the current AI investment cycle. His description: the dotcom era was "principally equity financed." Investors bought shares in technology companies, and when valuations collapsed in 2000-2001, the losses were borne predominantly by those shareholders. Banks and the broader financial system had limited direct exposure.

The current cycle differs. Jones described AI-related investment as increasingly funded by debt, including "more opaque forms" of debt financing. He did not specify the instruments, but the FSR's language about opacity points to structures that are harder to track and analyse than straightforward bank lending.

Why the Financing Structure Changes the Risk Profile

The distinction between equity and debt loss-absorption is fundamental to financial stability analysis. Equity investors accept that their investment can go to zero. The loss is painful but contained within the investor base. Debt is different: lenders expect repayment. When borrowers cannot repay, the loss moves to the lender. When lenders are financial intermediaries, the loss can move through the system, affecting credit availability and confidence more broadly.

The October 2026 FSR said AI debt financing is "less transparent and exposed to earnings disappointments." If the 45% earnings growth expectations Jones described prove unsustainable and earnings disappoint, debt-funded investments face the most acute pressure. Opacity means the full extent of that pressure may not be visible until it is already spreading.

Opacity and the Risk of Sharp Market Reactions

Opacity in financing structures creates a specific hazard. When it is difficult to assess how much leverage exists in the system, where it sits, and who ultimately bears the losses, markets can react suddenly and sharply when uncertainty resolves. The FSR noted that opacity can trigger reactions as participants pull back from exposures they cannot properly evaluate.

Jones was raising these questions in front of superannuation fund executives whose $4.4 trillion in assets includes significant technology sector exposure. The FSR described the financial system as resilient but noted there is no room for complacency. The combination of high valuations, high concentration, rising debt in opaque forms, and accelerating operational risk was the concern he was articulating.