Report explores how AI financing could harm the global economy if the industry fails to deliver
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works .
The report makes a distinction between "core" AI firms and others in the space. Presumably, core firms include companies like TSMC, Nvidia, and AMD, memory makers like SK hynix and Micron, and storage vendors like Western Digital . Those firms are seeing historical windfalls, and most of their production is currently spoken for years in advance. In other words, in this gold rush, these are the companies making bank selling the shovels.
In theory, if non-core players fail, only their investors would suffer harm, but according to the report, there's still risk to worry about. Hedge funds have increased leveraged positions and margin borrowing, further exposing themselves to the blast radius of a potential bubble pop. Adding to that, the IMF states that the share of single stocks in leveraged ETFs increased to 28%, likely fueled by demand for AI and tech stocks. By our reckoning, a sharp drop in those equities could trigger a massive sell-off by the ETF issuers and lenders, triggering a feedback loop.
The section of the report that focuses on circular investments within the industry further emphasizes the problem. The IMF tracked fourteen public transactions since 2023 and found that $300 billion invested in "financially weaker" AI companies (mostly by hyperscalers), along with $650 billion in debt, accounted for $1.4 trillion in revenue from services and chip orders. Most of those virtual dollars are concentrated in only a handful of companies, too, increasing the risks that if one catches a cold, the herd might get the flu.
The IMF points out that "AI has become an important source of support for the global economy and financial markets." The silver lining is that according to the Fund, this investment has helped prop up global economies at a time when the current war in Iran is affecting energy prices and creating policy uncertainty. Furthermore, a recent global stress test on banks indicated that they'd "remain broadly resilient" even with a combination of an energy pricing shock, higher inflation, and an AI-driven market correction.
Big tech spends more than $1 trillion on AI infrastructure
Key considerations
- Investor positioning can change fast
- Volatility remains possible near catalysts
- Macro rates and liquidity can dominate flows
Reference reading
- https://www.tomshardware.com/tech-industry/big-tech/SPONSORED_LINK_URL
- https://www.tomshardware.com/tech-industry/big-tech/the-imf-highlights-how-a-financial-wipeout-in-the-ai-sector-could-become-a-global-contagion-agency-report-shines-light-on-circular-economics-and-leveraged-loans#main
- https://www.tomshardware.com/membership
- Nintendo stands by physical games as Sony embraces a digital-only future
- From Training to Production, NVIDIA and CoreWeave Close the Loop on Agentic AI
- FBI shuts down over 40 North Korean laptop farms used by fake remote workers
- Rally Up: ‘Gears of War: E-Day’ Launches on GeForce NOW
- Bambu Lab officially teases its first 3D scanner
Informational only. No financial advice. Do your own research.