Huge risk of AI-fuelled stock market crash with impact on people’s finances, IMF warns

Story by Graham Hiscott

Chip giant Nvidia has become the world’s most valuable company under CEO and founder Jensen Huang© AFP via Getty Images

One of the world’s top economic bodies has warned of the risk of an AI-fuelled stock market bubble.

Pierre-Olivier Gourinchas, the IMF’s chief economist, said: “We are seeing valuations that are quite stretched.” He added: “Our job is to look for potential risks and this is certainly one of the risks… There are echoes in the current tech investment surge with the dotcom bubble of the late 1990s. It was the internet then, it is AI now.” Mr Gourinchas said there was a risk that stock markets could “reprice sharply”, with knock-on impacts for people’s finances and the wider economy.

OpenAI boss Sam Altman’s personal fortune is estimated at £1.4billion© AFP via Getty Images

The IMF’s Global Stability Report said share prices could “collapse” if tech firms fail to deliver. It warned that, on some measures, the dangers were “substantially higher than during the dotcom bubble.”

Its warning follows a growing number of respected bodies, central banks and industry chiefs about a possible stock market bubble. It comes after Bank of England Governor Andrew Bailey said a stock market bubble could be about to burst as fears grow over the inflated value of AI tech companies.

In a letter to G20 ministers, he said increased debt levels and a failure to fully implement agreed financial reforms would lead to increased vulnerability. Mr Bailey, ahead of the latest IMF meeting, cautioned that there could therefore be a “disorderly adjustment”, which would see asset prices slump from recent highs.

Jamie Dimon, the boss of investment banking giant JP Morgan, is among those to have warned that there is a significant risk of a slump in stock valuations in the next six months to two years.

Bank of England Governor Andrew Bailey has added his voice to concerns about the value of AI companies© Getty Images

Nvidia, the chipmaker whose technology is integral to the roll-out of AI, has seen its shares leap 40% this year and has a market valuation of £3.5trillion, making it the most valuable company in the world. It was only founded 12 years ago.

There are also worries about the circular nature of the money flowing around the AI industry. A number of the deals struck by Nvidia have been seen as the chipmaker financing its customers to buy its chips. These types of agreements were said to be a characteristic of the dotcom boom.

Ruchir Sharma, from research firm Rockefeller International, estimated that 40% of America’s economic growth this year was due to AI spending.