Fears of an AI bubble have been growing for years. And now the International Monetary Fund is the latest to sound the alarm.
In its Global Financial Stability Report released last week, the global financial institution warned that markets around the world were increasingly at the mercy of shaky investments in AI.
The untold billions invested in AI have boosted economic growth, the IMF says, but the boom could quickly reverse if the benefits, which so far have proven largely elusive, never materialize – or at least not in proportion to the epic levels of investment. AI stocks would fall and the resulting market correction would send powerful shocks through the global economy.
“Increasing leverage could be a catalyst for such a correction,” the IMF warned in a blog post reporting its findings. “Hyperscalers, as the largest data center operators are called, are increasingly borrowing, while investors are taking advantage of leverage to invest in AI stocks. »
The report also takes a cautious look at the circular nature of AI funding, whose biggest benefactors And the beneficiaries of AI companies are other AI companies. Nvidia, for example, agreed to invest $30 billion in OpenAI and provide another $105 billion for an OpenAI data center; OpenAI is one of Nvidia’s biggest customers, relying on its chips to power and train its AI models, so a lot of those billions will go straight to Nvidia when it buys more chips. As well as creating a mirage of robustness, this also means that their financial health is inextricably linked.
“Pressures on major companies receiving investments could lower revenue expectations and the valuation of investments, which would in turn weaken the value of the debt accumulated in these transactions,” the IMF writes. “Our review of 14 such transactions since 2023 found approximately $300 billion in equity investments and $650 billion in debt, in exchange for $1.4 trillion in future revenue commitments.”
A disastrous AI-driven market correction isn’t the only economic catastrophe potentially looming. The IMF is also concerned about a rise in government bond yields or interest rates, or a potential major cyberattack targeting critical government and financial institutions – a strike that could potentially be assisted by powerful AI models.
The IMF is far from alone in warning of an AI bubble, but as a manager of the global economy, its warning is one of the most serious to date. Fears were stoked again earlier this month when it was announced that OpenAI’s annualized revenue was $20 billion less than expected, dampening hopes that it would soon be on the path to profitability. Everyone knows not to put all your eggs in one basket, but who can stop the breakneck freight train of the global economy?
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