IMF says it’s too early to call a long-term reversal in AI stocks
The International Monetary Fund says it's too early to determine whether investors are cooling on artificial intelligence stocks, citing ongoing volatility and political shifts that could impact data center growth.
At a press briefing in Washington on November 12, IMF spokesperson Julie Kozack emphasized that while the fund is monitoring recent turbulence in AI stocks, it remains premature to declare a long-term shift in investor sentiment. The IMF is tracking both market volatility in AI-linked shares and political developments in the US that could impact data center construction.
Kozack noted that AI equity valuations remain vulnerable to reassessments of the technology's long-term profitability. "That overall view that we have taken still remains the case," she stated, reflecting the fund's cautious approach to the current market situation.
The political concerns center on reports that Democratic governors plan to reevaluate data center projects. For an industry dependent on substantial power, land, and permits, a slower approval process could significantly impact growth plans for AI companies.
Economic risks
The IMF's caution predates this week's briefing, with its October Global Financial Stability Report highlighting concentrated risks from elevated AI valuations and increasing debt at major tech firms. The report specifically focused on hyperscalers—giant cloud providers operating massive data center networks—which now account for 10% of global investment-grade bond issuance, up from less than 1% in 2024.
The fund modeled potential scenarios where reduced AI investment could significantly impact global GDP, projecting cuts of as much as 1.1% by 2028 worldwide and 1.8% in the US. Market concentration adds another layer of risk, with the Magnificent Seven tech stocks now comprising over 35% of the S&P 500, compared to 12% a decade ago.
That overall view that we have taken still remains the case.
Market implications
The IMF's position is notable for what it doesn't declare—neither a bubble nor a market top. Instead, it emphasizes that the risks identified in October remain relevant, and recent volatility hasn't resolved the fundamental questions about AI stocks. For investors, this suggests less of a sell signal and more of a warning about portfolio concentration.
The credit market represents an underappreciated risk point, as hyperscalers' increased bond issuance means bond investors now have significant exposure to AI. Additionally, energy constraints from the Iran conflict continue to link data center growth with inflation, adding another variable to the equation.
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