AI boom’s funding web could spread losses across global markets, IMF warns

Synopsis

The IMF reports that global AI investment could induce a significant market correction if expectations are unmet. Economic growth has been supported by spending on AI infrastructure, but future returns may fall short. Increased leverage among investors and firms raises the risk of forced selling during a downturn. Circular funding arrangements between tech giants and AI companies could exacerbate losses across markets.

The global AI spending boom could trigger a selloff that spreads beyond technology stocks if companies fail to deliver the returns investors expect, the International Monetary Fund has warned.

In its October 2026 Global Financial Stability Report, the IMF said rising borrowing, leveraged stock bets and funding links between AI companies could amplify such a correction. It identified an AI-led market downturn, a sharp rise in government bond yields and cyber threats as three key risks to financial stability.

“Weaker or less durable investment and profitability in AI would not only undermine a key engine of growth [...] but also lead to a correction in AI-linked equities and credit, which now account for a large share of both markets,” the IMF said in the report.

Spending on data centres, chips and related infrastructure has supported economic growth, while strong earnings have lifted the shares of companies at the centre of the AI boom. But the IMF said AI capabilities might require less investment than anticipated, or deliver smaller economic gains than investors expect.

Live Events

During the briefing, Athanasios Vamvakidis, Deputy Director, Monetary and Capital Markets Department, IMF, said, “Under a severe stress test scenario in our report that includes shocks from risk‑off from an AI market correction, shocks in energy prices and in the bond market, including through NBFIs, the banking sector, as a whole, remain resilient.”

The report cited a scenario in the October World Economic Outlook in which an unwinding of AI investment could leave global GDP as much as 0.4% lower by 2028, with investment down 1.3% and consumption down 0.6% relative to the baseline.

Borrowing raises the stakes

The IMF warned that growing leverage among AI companies and investors could make a market correction more severe.

“These growing sources of leverage heighten the potential for forced selling and surges in equity volatility and credit spreads in the event of lacklustre and less durable AI investment and profitability,” the IMF said.

Hyperscalers, the largest cloud computing and data centre operators, now account for 10% of global investment-grade bond issuance, up from less than 1% in 2024, according to the IMF.

Their core businesses continue to generate strong earnings, but heavy AI spending is rapidly reducing their free cash flows, the money left after operating expenses and capital investment. This makes debt financing increasingly necessary, the report said.

Investors are also increasing their exposure through leverage. Hedge funds’ gross equity positions plus equity margin loans have risen from the equivalent of 10% of advanced economies’ GDP in 2024 to around 15%. Over the same period, the share of single stocks in leveraged exchange-traded funds, which seek to magnify investment returns, has increased to 28% from 16%, the IMF said.

If AI-linked stocks fall sharply, these positions could amplify the selloff as investors are forced to sell assets to meet margin calls or reduce their exposure, the IMF warned.

Funding deals tie companies together

The IMF also flagged circular financing arrangements, in which large technology companies fund AI firms that commit to future purchases of services or chips, tying investment values to expected revenues.

Its review of 14 publicly disclosed transactions since 2023 identified approximately $300 billion in equity investments led by hyperscalers in financially weaker AI firms, supplemented by $650 billion in debt. These deals are linked to $1.4 trillion in future revenue commitments through services or chip orders, concentrated among a handful of companies.

If a company receiving funding runs into trouble, investors could suffer losses on two fronts. Their equity and debt investments could lose value just as the future revenues tied to that company become less certain, the report said.

Losses could spread across borders

The fallout could reach markets with relatively limited direct exposure to AI stocks, the IMF said.

“The consequences of an AI correction could be global, with some jurisdictions more sensitive than others,” the IMF said in the report.

Those holdings rose sharply between 2022 and 2026, with much of the increase reflecting greater allocations to hyperscalers and other AI-related companies, according to the report.

The IMF’s 2026 Global Bank Stress Test that combines weaker-than-expected AI productivity gains, a technology stock correction, higher interest rates and bond market disruptions, found that global GDP growth would fall around three percentage points below baseline in the first two years. Global unemployment would rise by 3.5 percentage points, while inflation would increase by more than four percentage points by 2027.

The IMF called for closer oversight of leverage in excessive leverage in AI investments and for supervisors to assess how interconnected funding arrangements could amplify losses across the financial system.

Onion inflation at 108%? Yes, but not really. What is different this time?

Curbing rupee bets: What the RBI’s new rules mean for the hedge-now-or-wait question

Brinjal, buffalo, bacteria: Inside India’s pay-for-nature system

Homebuyers wait as NCLT panel picks holes in unfinished Jaypee projects

The NBFC saga - Part 3: How one default in 2018 changed the way RBI reads risk

Four rules made HDFC Bank a compounder. All four have stopped. Can the new CEO rewrite them?