IMF: AI stock decline threatens financial stability — The Guardian
The International Monetary Fund warned that a possible decline in the value of shares in companies linked to artificial intelligence could threaten the stability of the global financial system. As The Guardian reports, the fund named high valuations of AI companies and their growing debt as one of the reasons for elevated risks to the financial system.
Risk of a correction in the AI market
In its semiannual Global Financial Stability Report, the IMF noted that the consequences of a correction in the value of assets linked to artificial intelligence could be global. Besides the United States, Asian markets could be the most vulnerable. The United Kingdom and the eurozone are potentially less sensitive to such a scenario, but investors from these regions with investments in US assets could also suffer losses.
The IMF listed a possible downturn in the AI market among three key risks to stability, alongside rising government borrowing costs and the threat of a large-scale cyberattack. In the fund’s view, these factors could in the near term lead to a sharp tightening of financial conditions and market turmoil.
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Debt and concentration of investment
The fund drew attention to the interconnections among major technology companies and the significant volumes of borrowing used to finance AI investments. A weakening of investment or profitability in this area could, according to the IMF, lead to a correction in the prices of related assets. It could be amplified by high debt levels, the concentration of investments, and cyclical financing mechanisms among companies in the sector.
Seven technology companies — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — now account for more than 35% of the S&P 500 index, compared with 12% ten years ago. Their combined market capitalization has increased by more than 50% over the past two years.
The IMF also warned that the large-scale investments of companies building AI infrastructure could prove to be greater than necessary for the successful rollout of the technology, while the economic impact could be lower than expected. Over the past three years, the fund recorded $300 billion in deals between major AI infrastructure providers and weaker AI companies, supplemented by $650 billion in debt financing in exchange for future financial commitments of $1.4 trillion.
