High valuations and debt put sector in danger, while fund also warns on government borrowing and cyber-attacks

The threat of an AI share price crash rippling out across global markets is putting world financial stability at risk, the International Monetary fund has warned.

In its twice-yearly Global Financial Stability Report, the IMF highlighted the sky-high valuations for AI companies along with their increasing debt pile as one reason that risks in the system are “elevated”.

“The consequences of an AI correction could be global,” it warned. Aside from the US, Asian markets would be most exposed, and the UK and euro area potentially more insulated – though their investors with exposure to the US would be hit.

An AI crash was one of three “salient risks” to stability identified by the IMF, alongside rising government borrowing costs and the threat of a big cyber-attack.

It called this trio of factors “plausible near-term catalysts for a sharp tightening of financial conditions and market turmoil”.

The IMF’s analysis underlined the interconnected nature of big AI companies, and the high levels of borrowing being undertaken to fund investment in the sector.

“Weaker or less durable investment and profitability in AI could trigger a correction in AI-related asset prices, exacerbated by rising leverage, concentrated exposures, and circular financing arrangements,” it said.

Such a reassessment would then “sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with global spillovers”.

The “magnificent seven” big tech stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – account for more than 35% of the S&P 500 share index in the US, up from 12% a decade ago, and their total market capitalisation has increased by more than 50% in the past two years.

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