The International Monetary Fund warned that lofty valuations in artificial intelligence and rising leverage across the sector pose a mounting threat to global financial stability. In its Global Financial Stability Report, the IMF said risks are “elevated,” citing an AI-led correction as a plausible catalyst for tighter financial conditions and market turmoil, alongside higher sovereign borrowing costs and major cyberattacks. The fund noted AI-related exposures are heavily concentrated, with the “Magnificent Seven” now accounting for more than 35% of the S&P 500, up from 12% a decade ago. It flagged growing signs that AI’s payoff may not match the massive capital outlays by hyperscalers building data-center infrastructure. Leverage is amplifying vulnerabilities, the IMF said, pointing to corporate debt, hedge-fund positioning and retail borrowing. It highlighted roughly $300 billion in transactions between hyperscalers and weaker AI firms, $650 billion in associated debt and $1.4 trillion in future commitments—arrangements that could worsen a downturn via circular financing. The fund said Asia, besides the U.S., is most exposed to an AI correction, while UK and euro-area equities appear relatively insulated. Separately, the UK FCA chief urged smaller firms to insure against AI-related cyber risks.
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