IMF warns AI share crash could put global financial stability at risk

The IMF's Global Financial Stability Report described the three factors as "plausible near-term catalysts for a sharp tightening of financial conditions and market turmoil".

The fund highlighted the interconnected nature of big AI companies and the high levels of borrowing being undertaken to fund investment in the sector. "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," it said. Such a reassessment would "sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with global spillovers".

The "magnificent seven" big tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) now account for more than 35% of the S&P 500 index, up from 12% a decade ago, and their combined market value has grown by more than 50% in the past two years.

Yet the IMF pointed to "growing evidence" that the successful rollout of AI "may not require investment on the massive scale being undertaken by 'hyperscaler' firms", and that "potential economic gains may not be as large as expected". The hyperscalers, the companies building the underlying AI infrastructure including vast datacentres, include Amazon Web Services, Google, Meta and Oracle.

The report also highlighted rising leverage that could amplify a downturn, including corporate debt, hedge fund investment and retail investors borrowing to speculate in AI stocks. These sources of leverage "heighten the potential for forced selling and surges in equity volatility", it said.

It further warned of "circular financing" deals tying stronger AI companies to weaker partners, identifying $300bn worth of transactions between hyperscalers and weaker AI firms in the past three years.

"The consequences of an AI correction could be global," the report said. Outside the US, Asian markets would be most exposed, while the UK and euro area could be more insulated, though their investors with exposure to the US would be hit.

How it's landing

IMF @IMFNews

International Monetary Fund

Global financial markets face growing risks from AI, bond yields, and cyberattacks. As vulnerabilities increase, policymakers should contain leverage, strengthen debt sustainability, and harden cyber defenses. Read our new blog: imf.org/en/blogs/artic…

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Analysis

Why This Matters

AI stocks now account for more than 35% of the S&P 500, up from 12% a decade ago, so an AI correction would hit broad equity markets, index funds and pension savers worldwide, not just tech investors.
The fund identifies three layers of leverage behind the AI boom: corporate borrowing, hedge fund positioning and retail investors borrowing to speculate in AI stocks. These could turn a share price dip into forced selling and wider market turmoil.
The warning ties financial stability to AI spending: if massive investment in datacentres and infrastructure does not produce durable profits, the report says investment would fall sharply and financial conditions would tighten globally.

Background

The Global Financial Stability Report is the IMF's twice-yearly assessment of vulnerabilities in the world financial system. This edition was published as AI-related investment has surged, led by the hyperscalers (Amazon Web Services, Google, Meta and Oracle) building the datacentres and computing infrastructure underpinning the AI rollout. The report does not predict a crash, but sets out how one could unfold, noting that weaker or less durable investment and profitability in AI could trigger a correction in AI-related asset prices, with spillovers across global markets.

Key Perspectives

The IMF: Sees system-wide risks as "elevated" and warns that leverage, concentrated exposures and circular financing could amplify an AI-related correction, noting that "the consequences of an AI correction could be global". Hyperscalers and their investors: Continue to borrow heavily and invest at unprecedented scale on the assumption that AI infrastructure will generate durable profits, a bet reflected in market valuations that have risen by more than 50% in two years. Sceptics: The fund itself cites "growing evidence" that the successful rollout of AI may not require investment on the current massive scale, and that potential economic gains may not be as large as expected, implying current valuation levels are stretched.

What to Watch

Whether AI-related investment and profitability hold up: the IMF says weaker or less durable results could trigger the correction it describes.
The $300bn in circular financing deals between hyperscalers and weaker AI firms identified over the past three years, a potential channel for contagion between strong and weak companies.
The other two salient risks, rising government borrowing costs and a major cyber-attack, either of which the fund says could act as a near-term catalyst for market turmoil.