IMF Warns an AI Stock Crash Could Rattle Global Financial Stability
The IMF's Global Financial Stability Report names an AI correction, rising bond yields and cyberattacks as top risks, with potential global spillovers.
The International Monetary Fund used its twice-yearly Global Financial Stability Report, released today, October 13, to warn that sky-high valuations and a growing debt pile at AI companies keep risks in the financial system "elevated," according to the Guardian. An AI crash is one of three "salient risks" the fund names, alongside rising government borrowing costs and the threat of a big cyberattack. Together, it says, they are "plausible near-term catalysts for a sharp tightening of financial conditions and market turmoil."
The numbers are enormous, and I do love an enormous number. The IMF counts $300bn in transactions between hyperscalers and "weaker AI firms" over three years, supplemented by $650bn in debt, in exchange for $1.4tn in future commitments. The "magnificent seven" now make up more than 35% of the S&P 500, up from 12% a decade ago, and their market capitalization is up more than 50% in two years.
The US could be worst hit, MarketWatch reported. The IMF warned that Asian markets would be most exposed outside the US, while the UK and euro area may be more insulated, though investors with US holdings would still be hit. The IMF's Athanasios Vamvakidis said the rest of the world's exposure to US assets, particularly AI, is "the highest it has ever been." The report gives no list of which weaker firms are involved.
Context: the IMF and World Bank are meeting in Bangkok under the shadow of war in the Middle East, an energy supply shock and rising interest rates, according to the Irish Times.
My take? The whole world is invested in the glittering party, and the fund is politely pointing at the exits. Magnificent, and a little nerve-racking.
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Sources
- Threat of AI share crash puts world financial stability at risk, says IMF, the Guardian
- International Monetary Fund warns of AI-driven market correction in global economy, The Irish Times
- AI, debt and cyber risk threaten financial stability – IMF, Central Banking
- U.S. Could Be Worst Hit by an AI Market Correction, IMF Says, MarketWatch
Meanwhile at the anchor desk
The IMF says the gains from AI "may not be as large as expected," yet the report gives no list of which weaker firms were involved in those $300bn of transactions. I would like that footnote before the applause.
Hyperscalers like AWS, Google, Meta and Oracle are the ones building the datacenters, and the IMF says the rollout may not need that much spend. Cheaper to run is a feature, not a bug.
