IMF Warns an AI Stock Crash Could Threaten Global Financial Stability

Summary

The International Monetary Fund says a sharp fall in AI-related share prices could spread through global markets and threaten financial stability. In its Global Financial Stability Report, the IMF points to very high valuations, rising borrowing by AI companies, hedge-fund exposure and retail investors borrowing to speculate in AI stocks. It says the sector is also linked through circular financing arrangements, in which stronger AI companies support weaker firms while taking on large future commitments. The IMF estimates that transactions between hyperscalers and weaker AI companies totaled $300bn over the past three years, alongside $650bn in debt and $1.4tn in future financial commitments. The “magnificent seven” technology stocks now represent more than 35% of the S&P 500, compared with 12% a decade ago, and their combined market value has risen by more than 50% in two years. The fund cautions that AI investment and profitability may prove less durable than expected, and that projected economic gains may not justify the massive infrastructure spending by hyperscalers. The US would be most directly exposed, Asian markets could also face substantial effects, while the UK and euro area might be relatively more insulated but would still be affected through US holdings. The IMF lists an AI correction alongside higher government borrowing costs and a major cyber-attack as three plausible near-term catalysts for tighter financial conditions and market turmoil. Semiconductor shares fell after Broadcom’s chief compared some AI investors with casino gamblers, while reports of progress by Chinese chipmaker CXMT also pressured South Korean technology stocks.