IMF warns AI market correction could threaten financial stability

The International Monetary Fund warned that a sharp correction in AI-related share prices could spill across global markets, citing stretched valuations, rising debt and concentrated investor exposure. In its Global Financial Stability Report, the fund said risks in the system are “elevated” and identified an AI downturn as one of three near-term threats alongside higher government borrowing costs and a major cyber-attack.

IMF official Athanasios Vamvakidis said global exposure to US assets, particularly AI, is at its highest level, creating wealth effects now but raising the risk of broad fallout if markets reverse. The big tech group of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla accounts for more than 35% of the S&P 500, up from 12% a decade ago, and its total market capitalisation has increased by more than 50% in the past two years.

The IMF pointed to leverage from company debt, hedge funds and retail investors borrowing to speculate in AI stocks, warning that a downturn could force selling and fuel volatility. It also cited $300bn (£227bn) worth of transactions between hyperscalers and weaker AI firms in just the past three years, supplemented by $650bn in debt, in exchange for $1.4tn in future financial commitments.