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 published last week, the global financial institution warned that markets everywhere are increasingly at the mercy of precarious AI investments.
The untold billions poured into AI has driven economic growth, the IMF says, but the boom could quickly invert if profits, which so far have largely proven elusive, never come to fruition — or at least not proportionately with the epic investment levels. AI stocks would tank, and the resulting market correction would send powerful shocks across the global economy.
“Growing leverage could be a catalyst for such a correction,” the IMF warned in a blog post about its findings. “Hyperscalers, as the largest data center operators are known, are borrowing more and more, while investors have been leveraging to invest in AI stocks.”
The report also casts a wary eye to the circular nature of AI financing, in which the biggest benefactors and beneficiaries of AI companies are other AI companies. Nvidia, for example, agreed to invest $30 billion in OpenAI and provide another $105 billion towards 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 back to Nvidia when its buys more chips. Besides creating a mirage of robustness, it also means that their financial health is inextricably tangled with each other.
“Stress at key companies receiving investment could lower revenue forecasts and investment valuations, which in turn would weaken the value of the accumulated debt in those deals,” the IMF wrote. “Our review of 14 such transactions since 2023 found about $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 worried about an increase in government bond yields, or interest rates, or a potential major cyberattack targeting critical government and financial institutions — a strike that could feasibly be assisted by powerful AI models.
The IMF is far from the only one to caution about an AI bubble, but as the stewards of the global economy, theirs is one of the weightiest warnings yet. Fears were freshly stoked again earlier this month when it was reported that OpenAI’s annualized revenue was $20 billion lower than anticipated, dampening hopes that it would soon be on the road to profitability. Everyone knows not to put all your eggs in one basket, but who can stop the runaway freight train of the global economy?
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