Concentrated leverage and circular financing amplify correction risk
The International Monetary Fund has identified an AI share price crash as one of three “salient risks” to global financial stability. In its Global Financial Stability Report released on 13 October 2026, the fund said high valuations in the AI sector and growing debt in the companies underwriting the build-out could amplify any market correction, with consequences reaching beyond the United States. The fund named an AI crash, rising government borrowing costs and a major cyber-attack as “plausible near-term catalysts for a sharp tightening of financial conditions and market turmoil.”
The fund’s analysis underlined the interconnected nature of big AI companies and the high levels of borrowing being undertaken to fund investment in the sector. “Weaker or less durable investment and profitability in AI could trigger a correction in AI-related asset prices, exacerbated by rising leverage, concentrated exposures, and circular financing arrangements,” the report said. Such a reassessment would then “sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with global spillovers.”
“The consequences of an AI correction could be global,” the IMF warned. Aside from the United States, Asian markets would be most exposed, with the UK and euro area potentially more insulated — though their investors with US exposure would still be hit.
Valuations in the sector have soared. The “magnificent seven” big tech stocks — Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia and Tesla — now account for more than 35% of the S&P 500 share index, up from 12% a decade ago. Their total market capitalisation has increased by more than 50% in the past two years.
Yet the IMF said there is “growing evidence” that the successful rollout of AI “may not require investment on the massive scale being undertaken by ‘hyperscaler’ firms,” and that “potential economic gains may not be as large as expected.” The hyperscalers — the companies building the underlying infrastructure for the AI rollout, including vast data centres — include Amazon Web Services, Google, Meta and Oracle.
The fund also highlighted the growing leverage underwriting the AI boom, identifying three sources: debts contracted by the companies themselves; hedge fund investment in the sector; and retail investors borrowing to speculate in AI stocks. In the event of an AI-led downturn, “these growing sources of leverage heighten the potential for forced selling and surges in equity volatility,” the report said.
The IMF pointed to the prevalence of “circular financing” arrangements that tie stronger AI companies to weaker partners in the same sector, and could exacerbate the impact of a share price correction. It identified $300bn (£227bn) worth of transactions between hyperscalers and “weaker AI firms” in just the past three years, supplemented by $650bn in debt, in exchange for $1.4tn in future financial commitments.