Threat of AI share crash puts world financial stability at risk, says IMF

The IMF’s Global Financial Stability Report warns that an abrupt fall in AI-related share prices poses a major risk to global financial stability. Sky-high valuations concentrated in a handful of tech giants - the “magnificent seven” now account for more than 35% of the S&P 500 and have seen market value rise over 50% in two years - combine with rising government borrowing costs and the threat of a large cyber-attack to create a trio of near-term catalysts for market turmoil. The fund highlights that global exposure to US AI assets is at record levels, leaving Asia particularly vulnerable while the UK and euro area are relatively more insulated but not immune through investors holding US assets.

The IMF focuses on leverage and complex financing links that could amplify a correction: corporate debt taken on by AI firms, hedge fund and retail margin exposure, and circular financing tying strong hyperscalers (Amazon Web Services, Google, Meta, Oracle) to weaker AI partners. It identifies roughly $300bn of transactions between hyperscalers and weaker firms in three years, backed by $650bn of debt and $1.4tn of future commitments. If investment or profitability proves less durable than expected, a reassessment would force selling, spike equity volatility, tighten financial conditions, sharply cut investment and produce global spillovers, the report warns.