IMF warns an AI share-price correction could ripple across global markets

The International Monetary Fund warned on October 13 that the threat of a crash in AI share prices is putting world financial stability at risk, The Guardian reported. In its twice-yearly Global Financial Stability Report, the fund cited high valuations for AI companies and their growing debt as one reason risks in the system are "elevated."

"The consequences of an AI correction could be global," the IMF warned, according to the Guardian. Outside the US, Asian markets would be most exposed, with the UK and euro area potentially more insulated, though investors holding US assets would be hit. "The exposure of the rest of the world to US assets, particularly AI, is the highest it has ever been," Athanasios Vamvakidis, a deputy director at the IMF, said at the report's launch.

The report listed an AI crash as one of three "salient risks," alongside rising government borrowing costs and the threat of a big cyber-attack. It said weaker or less durable investment and profitability in AI could trigger a correction in AI-related asset prices, "exacerbated by rising leverage, concentrated exposures, and circular financing arrangements."

The IMF identified $300 billion of transactions between hyperscalers and "weaker AI firms" over the past three years, supplemented by $650 billion in debt, in exchange for $1.4 trillion in future financial commitments, the Guardian reported. It also pointed to "growing evidence" that a successful AI rollout may not require investment on the massive scale hyperscalers are undertaking.