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The International Monetary Fund (IMF) warns that the artificial intelligence sector faces risks of a financial crash that could spread globally. The report states the world economy is becoming heavily dependent on capital flowing into AI, with a potential collapse by 2028 harming global GDP, investment, and consumption. While core companies like TSMC, Nvidia, AMD, SK hynix, Micron, and Western Digital currently have production booked years in advance, the IMF notes that non-core players face significant risks due to increased leverage from hedge funds and margin borrowing.

The report highlights a specific issue with circular investments within the industry. Since 2023, $300 billion was invested in financially weaker AI companies alongside $650 billion in debt, generating $1.4 trillion in revenue. This concentration of virtual dollars in a few firms increases the risk that if one company struggles, others may follow. The IMF observes that hyperscalers now represent 10% of investment-grade bond issuance, up from under 1% in 2024, as these companies make substantial profits but require large loans to fund their AI hardware purchases.

Despite these warnings, the IMF notes that AI investments have helped support global economies during recent energy price shocks and policy uncertainty caused by the war in Iran. A recent stress test indicated banks would remain broadly resilient even with an AI-driven market correction. The Fund predicts a potential 0.4% drop in global GDP, 1.3% in investment, and 0.6% in consumption by 2028 if AI profitability proves lower than expected. However, the report suggests excessive debt might make any resulting shock to the system harsher than initially predicted.