In its latest Global Financial Stability Report, the IMF examined long-standing fears that the AI industry's "circular economy" could implode and take associated investments with it. The fund concluded that a correction driven by "weaker or less durable AI investments and profitability" could reduce global GDP by 0.4%, investment by 1.3% and consumption by 0.6% by 2028.
The report distinguishes between "core" AI firms and the rest of the sector. Core companies, which appear to include chipmakers and memory and storage vendors such as TSMC, Nvidia, AMD, SK hynix, Micron and Western Digital, are seeing historic windfalls, with most of their production spoken for years in advance.
The bigger risk sits outside those core firms. The IMF notes that hedge funds have increased leveraged positions and margin borrowing, and that single stocks now make up 28% of holdings in leveraged exchange-traded funds, largely driven by demand for AI and tech equities. A sharp drop in those stocks could force ETF issuers and lenders to sell, triggering a feedback loop.
The fund also tracked 14 public transactions since 2023 and found that $300 billion invested in "financially weaker" AI companies, mostly by hyperscalers, along with $650 billion in debt, accounted for $1.4 trillion in revenue from services and chip orders. Most of that money is concentrated in a handful of companies, the report found. Hyperscalers now represent 10% of investment-grade bond issuance, up from under 1% in 2024.
The report notes a silver lining: AI investment has helped support global economies at a time when the war in Iran is pushing up energy prices and creating policy uncertainty. The IMF states that "AI has become an important source of support for the global economy and financial markets." A recent global stress test of banks indicated they would "remain broadly resilient" even to a combination of an energy price shock, higher inflation and an AI-driven market correction.
The fund cautioned, however, that the excessive debt and leverage flowing through the industry could make any shock harsher than its baseline scenario suggests.