The IMF Warns an AI Stock Crash Could Go Global as Hyperscalers Tie $1.4 Trillion in Promises to Weaker Firms

The International Monetary Fund has put an AI stock crash near the top of its worry list, and it says the damage would not stay in America. In its twice-yearly Global Financial Stability Report, released Tuesday at the IMF and World Bank Annual Meetings in Bangkok, the fund named an AI-driven market correction as one of three "salient risks" to the world's financial system.

The other two are a sharp jump in government borrowing costs and a major cyberattack. Together, the IMF said, they are "plausible near-term catalysts for a sharp tightening of financial conditions and market turmoil." Overall stability risks, it said, are "elevated."

Why it travels

"The consequences of an AI correction could be global," the report says. Outside the US, advanced Asian stock markets would be most exposed. The UK and euro area look more insulated, though anyone holding US shares would feel it.

"The exposure of the rest of the world to US assets, particularly AI, is the highest it has ever been," Athanasios Vamvakidis, deputy director of the IMF's Monetary and Capital Markets Department, told reporters. That wealth is propping up the global economy today, he said, but a correction "could have broad implications." His shorter version: "resilience is not necessarily safety."

Asia has already had a taste. Korea's KOSPI recently plunged 6% as Samsung sank 10% on fears of costlier money.

The circular money

The most striking numbers concern how the boom is financed. The IMF counted 14 publicly disclosed deals since 2023 in which hyperscalers channeled roughly $300 billion in equity into financially weaker AI companies, alongside $650 billion in debt. In return, those partners committed $1.4 trillion in future revenue.

In plain terms, big tech funds smaller firms that then promise to spend heavily with big tech. The report warns that weaker or less durable AI investment and profits "could trigger a correction in AI-related asset prices, exacerbated by rising leverage, concentrated exposures, and circular financing arrangements."

Borrowed money everywhere

The IMF flagged three sources of leverage. Hyperscalers now account for 10% of global investment-grade bond issuance, up from less than 1% in 2024. Hedge funds' gross equity positions plus margin loans have grown from 10% to about 15% of advanced economy GDP over the same span. And single stocks now make up 28% of leveraged ETFs, up from 16%.

These, the report says, "heighten the potential for forced selling and surges in equity volatility." It also flagged retail investors borrowing to speculate on AI stocks.

Concentration adds to the risk. The magnificent seven, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, now make up more than 35% of the S&P 500, up from 12% a decade ago. Their combined value rose more than 50% in two years.

Is the spending even needed?

The fund also questions the premise. It cites "growing evidence" that rolling out AI "may not require investment on the massive scale being undertaken by 'hyperscaler' firms," and that the economic gains "may not be as large as expected."

A reassessment, it says, would "sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with global spillovers." The IMF frames this as a risk scenario, not a forecast.

Banks under stress

The IMF ran a stress test combining disappointing AI productivity, elevated interest rates and an energy shock. Institutions holding 22% of global banking assets fell into the "weak" category, with post-stress capital ratios below 7%. Last year's exercise put that figure at 18%.

The mood around the report was already jittery. Chip stocks fell the same day after Broadcom's boss compared many AI investors to "casino" gamblers. A week earlier, IMF Managing Director Kristalina Georgieva warned that if big AI companies' earnings disappoint, high leverage and global holdings of US stocks could turn it into a broader shock.

What the IMF wants

The fund wants regulators to curb the excessive leverage used to buy AI exposure. Its list includes restrictions on equity margin financing, limits on leveraged ETFs, and sector-specific capital requirements and concentration limits where needed.

Some offers on this page may be paid placements or contain affiliate links.