IMF warns AI bubble could take down the global economy

What the IMF warned

In its Global Financial Stability Report published last week, the International Monetary Fund said AI investments are leaving markets increasingly fragile. Billions poured into AI have driven growth, but the boom could reverse quickly if profits never catch up with the scale of spending.

Leverage and circular financing

The IMF noted that hyperscalers, the largest data center operators, are borrowing more while investors use leverage to buy AI stocks. It also flagged circular AI financing: NVIDIA agreed to invest $30 billion in OpenAI and provide another $105 billion toward an OpenAI data center, while OpenAI is one of NVIDIA's biggest customers, so much of that money flows back through chip purchases.

Reviewing 14 such transactions since 2023, the IMF found about $300 billion in equity investments and $650 billion in debt in exchange for $1.4 trillion in future revenue commitments.

Other risks

The report also points to rising government bond yields and the threat of a major cyberattack on critical government and financial institutions, potentially aided by powerful AI models.

Why now

The warning follows reports that OpenAI's annualized revenue came in $20 billion below expectations, adding to concerns about an AI bubble.