The International Monetary Fund (IMF) warned that a sharp correction in AI stocks could spread through global markets, adding to financial stability risks from debt and cyber threats.
The IMF identified elevated AI valuations, higher government borrowing costs and a major cyberattack as plausible near-term catalysts for tighter financial conditions and broader market turmoil in its twice-yearly Global Financial Stability Report, released Tuesday.
The IMF noted that an AI-driven selloff could have worldwide consequences, with Asian markets particularly exposed outside the U.S. The U.K. and the Euro area may face less direct pressure, though investors holding U.S. assets could still suffer losses.
The agency said weaker AI investment or profitability could drive asset-price declines, reduce investment and trigger equity-market corrections. Corporate debt, hedge-fund exposure and retail borrowing could intensify forced selling and volatility.
Athanasios Vamvakidis, deputy director of the IMF’s monetary and capital department, said global exposure to U.S. assets, particularly AI investments, had reached its highest level on record. Speaking about the threats, he said, “These risks may be manageable on their own, but existing vulnerabilities could amplify them.”
Vamvakidis said that global markets have remained resilient amid uncertainty, buoyed by stronger-than-expected growth, robust corporate earnings and AI optimism. However, he added, ‘Resilience is not safety.”
AI Boom Faces Growing Capital Crunch Fears
The warning follows concerns from semiconductor executives that AI’s next bottleneck may involve financing rather than technology. On Monday, Broadcom Inc. (NASDAQ:AVGO) CEO Hock Tan said, "[What] I think might be the biggest constraint is capital," while Intel Corp. (NASDAQ:INTC) CEO Lip-Bu Tan also flagged financing concerns.
The remarks came days after billionaire investor Ray Dalio described AI as a "classic bubble" at the Forbes Global CEO Conference in Singapore. Dalio noted that surging AI borrowing, rising interest rates and the pressure to convert paper wealth into cash are pushing markets closer to the point where the AI bubble could burst.
Panmure Liberum analysts warned an AI downturn could drag the S&P 500 to 5,000 by the end of 2027. With hyperscaler spending projected to reach $1.2 trillion, upcoming earnings and 2027 guidance will test whether AI investments justify their cost. The analysts warned the bubble could burst in 2027 or 2028, potentially alongside further rate hikes.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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