IMF warns $1.4tn in circular AI deals could deepen a market correction

IMF flags AI bubble risk

The International Monetary Fund warned that a correction in AI-related stocks and debt could set off market turmoil. It named the AI risk as one of three that could sharply tighten financial conditions.

The concern centres on so-called "circular" AI deals, worth a combined $1.4 trillion. The term refers to investment, supply and revenue agreements between companies inside the same ecosystem that feed each other and can inflate valuations beyond real demand.

The other two risks

The IMF listed two further risks that could sharply tighten financial conditions:

• A sharp rise in government bond yields
• Cyber threats

The warning appeared in the IMF's global financial stability assessment. The core worry is that a sell-off in AI-linked assets could spill over into debt markets and broader financial conditions.

What it means for readers

AI investment has long been a main driver of markets. The IMF's warning suggests that this optimism is not a one-way bet, and that a reversal could have wide-reaching effects.