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AI boom could trigger sharp equity market correction, losses may spread around the world: IMF

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New Delhi | October 16, 2026 1:01:13 PM IST
The artificial intelligence (AI) boom is fuelling the expectation of economic growth in the short-run, but uneven adoption and expectations running ahead of actual productivity gains could lead to near-term disappointment, and a sharp equity market correction with losses spreading globally, according to International Monetary Fund (IMF).

The IMF, in a blog post, noted that the ongoing AI boom is largely driven by massive investments in infrastructure, particularly data centres, led by major technology companies known as hyperscalers. Despite having profitable core businesses, these companies are increasingly relying on debt markets to fund their expansion.

Also, their share of investment-grade bond issuance has surged more than tenfold over the past two years, rising from less than 1 per cent to 10 per cent and continuing to grow.

The IMF also highlighted the highly concentrated and interconnected nature of the AI industry, where hyperscalers invest in advanced AI model developers, which in turn purchase data centre capacity from the same companies.

The risk is that expectations may run rapidly ahead of productivity gains, setting the stage for near-term disappointment, it said, stressing, Big revenue or earnings disappointments by AI developers could undermine expectations of future profitability, dealing a hit to equity prices.

To explain this further, IMF gave an example of Amaras Law, that says we tend to overestimate the effect of a new technology in the short run and underestimate its effect in the long run.

As per IMF, AI investments will likely exceed the vast sums that went into building the railroads, the electricity grid, and the internet.

In the short run, the AI boom is a positive demand shock that is lifting growth, especially in the U.S. and Asian countries that supply hardware. Yet not all countries are riding this wave, and without broader adoption, too many could be left behind, it said.

However, it cautioned, expectations may run rapidly ahead of productivity gains, setting the stage for near-term disappointment

IMF further warned that Disappointing earnings from artificial intelligence (AI) companies, cyberattacks or incidents involving advanced AI models could trigger market correction that cascades through the highly leveraged and circular AI ecosystem. Also, given the sizable cross-border holdings of AI assets, the losses could spread around the world.

At the same time, the market can witness a profound disruption across the job market, as roughly 40 percent of jobs globally are exposed to AI. Notably, exposure rises to about 60 percent, in advanced economies. (ANI)

 
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