IMF warns AI investment surge could trigger financial market correction

The International Monetary Fund (IMF) said in its latest Global Financial Stability Report that the rapid expansion of AI investment could create a correction in financial markets if the sector fails to generate the expected returns. The report notes that billions of dollars have been poured into a small group of technology firms, raising the risk that a sell-off could affect broader markets beyond Silicon Valley.

The IMF highlighted the prevalence of circular financing arrangements, where AI companies act as investors, financiers and customers for one another, potentially spreading financial distress across the sector. It also warned that rising government bond yields and the growing threat of cyberattacks could further destabilise the financial system.

"More than 70 percent of tracked vulnerabilities exploited in 2026 were already being abused before or on the day they were publicly disclosed," the IMF said, underscoring the limited warning time for defenders.

The fund added that increasingly capable AI models could give cybercriminals more powerful tools to locate and exploit vulnerabilities quickly. While the IMF does not foresee an immediate collapse, its stress tests suggest the banking system could endure a severe downturn, though weaker institutions would be more vulnerable.

Regulators are urged to monitor excessive borrowing, concentrated investments and cyber resilience to mitigate the risk of a broader crisis.