IMF says AI investment bubble could burst, comparable to dot-com bubble

"There are many similarities between the late 1990s internet stock bubble and the current AI boom, with both eras pushing stock valuations and capital gains wealth to new heights, fueling consumption that added to inflation pressures, Gourinchas told the Reuters news agency in an interview. Then, as now, the promise of a new, transformative technology ultimately may not meet market expectations in the near-term and trigger a crash in stock valuations, he said."

"But just as in 1999, investment in the sector is not built on leverage, but by cash-rich tech companies. This is not financed by debt, and that means that if there is a market correction, some shareholders, some equity holders, may lose out, Gourinchas said at the start of the IMF and World Bank annual meetings in Washington. But it doesn't necessarily transmit to the broader financial system and create impairments in the banking system or in the financial system more broadly, he added."

"Tech firms are pouring hundreds of billions of dollars into AI chips, computing power, data centres and other infrastructure in a race to deploy the technology that promises massive productivity gains. Gourinchas said these gains have not yet been realised in the economy, just as the lofty valuations of internet stocks in the late 1990s were often not based on actual revenues, leading to the dot-com bust in 2000 and a shallow US recession in 2001."

The United States' AI investment boom resembles the late-1990s internet stock bubble, with high stock valuations and capital gains wealth driving consumption and inflation pressures. Promises of transformative AI may not meet near-term market expectations, risking a crash in stock valuations. Investment is mainly funded by cash-rich technology companies rather than debt, reducing the likelihood of contagion through the banking system. Companies are investing hundreds of billions in AI chips, computing power, data centres, and related infrastructure to capture productivity gains that have not yet materialized. The current AI boom appears smaller in scale than the dot-com era.

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