IMF Warns of ’AI Bubble‘ as Market Capitalization of Tech Stocks Raises concerns
WASHINGTON – the International monetary Fund (IMF) cautioned in its global Financial Stability Report released October 14th that the highly concentrated market capitalization of major artificial intelligence (AI) stocks is excessive, warning of potential ”rapid and sharp adjustments” if returns fail to justify current valuations.The alert comes as the U.S. economy shows outward signs of strength, masking underlying vulnerabilities and sparking debate over whether the current AI-driven market surge resembles a speculative bubble.
While U.S. Treasury Secretary Janet Yellen asserted October 15th in a CNBC interview that AI investment and application are still in an early growth phase – the “third inning” – anxieties are mounting on Wall Street. The IMF’s warning highlights a growing concern that the enthusiasm surrounding AI may be inflating stock prices beyond lasting levels, perhaps setting the stage for a important correction. This concern is amplified by emerging cracks in the real economy, including rising delinquency rates, increasing non-performing loans, and stress within the regional banking sector.
these economic fissures, hidden by the apparent strength of the AI-fueled market, are fueling the ”AI bubble theory.” Delinquency rates and non-performing loans are climbing alongside a slowing job market. U.S. small and medium-sized regional banks have experienced a series of non-performing loan incidents, while the $3 trillion private credit market is also facing scrutiny. The recent bankruptcy of a subprime lender and subsequent losses reported by JP Morgan have further heightened fears of a repeat of the 2008 financial crisis or the 2023 Silicon Valley Bank (SVB) collapse.
“On the outside, the U.S. economy recorded a high growth rate and major stock indexes showed a solid performance, reaching record highs, but when you look inside, as polarization deepened, side effects began to appear,” noted Lee Ha-yeon, a researcher at Daishin Securities.
Adding to the complexity are persistent inflationary pressures in the United States and China’s restrictions on rare earth exports – critical components in semiconductor manufacturing. These factors could drive up costs for AI companies and potentially hinder the Federal Reserve’s ability to lower interest rates.
Analysts are urging caution. Park Seung-young, a researcher at Hanwha Investment & Securities, drew parallels to the dot-com bubble, stating, “The dot-com bubble burst when the rate of return that could be obtained by investing capital began to decline due to rising interest rates.” He emphasized the need to assess whether current stock valuations are justified.
