The US artificial intelligence (AI) investment boom could be an economic bubble that could burst, comparable to the dot-com bust of the early 2000s, according to the International Monetary Fund.
Pierre-Olivier Grandchat, the IMF’s chief economist, predicted that the collapse was unlikely to become a systemic event that would disrupt the U.S. or global economy.
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There are many similarities between the internet stock bubble of the late 1990s and the current AI boom, with both eras driving wealth through stock valuations and capital gains to new heights, stimulating consumption and increasing inflationary pressures, Grinchas told Reuters in an interview.
In that case, he said, as is the case now, expectations for innovative new technologies could ultimately fail to meet market expectations in the short term, causing stock prices to collapse. But just like in 1999, investments in this space are not being made with leverage, but by deep-pocketed high-tech companies.
“This is not financed by debt, which means that if there is a market correction, some shareholders and equity holders may suffer losses,” Grinchas said at the start of the IMF/World Bank annual meeting in Washington.
“But that doesn’t necessarily mean it spills over into the broader financial system and causes an impairment in the banking system or the broader financial system,” he added.
Tech companies are pouring hundreds of billions of dollars into AI chips, computing power, data centers and other infrastructure in a race to deploy technologies that promise huge productivity gains.
Grinchas said that in the same way that the lofty valuations of Internet stocks in the late 1990s were often not based on actual earnings and led to the dot-com bust of 2000 and the shallow U.S. recession of 2001, those gains have yet to materialize in the economy.
However, the scale of the current AI boom is smaller than in the dot-com era, and according to data compiled by the IMF, AI-related investment will increase the U.S. GDP by less than 0.4% from 2022 onwards, compared to the 1.2% investment growth rate from 1995 to 2000 during the dot-com era.
Grinchas said that while the direct impact on financial stability may be limited, AI corrections could trigger changes in sentiment and risk tolerance, leading to more repricing of assets that could put stress on non-bank financial institutions.
“But it’s not a direct link. We don’t see a huge link from the debt channel,” Grinchas added.
AI investment supports the economy
Excessive leverage at the height of the U.S. real estate bubble in 2008 sparked a global financial crisis that led to the failure of several major banks and triggered the deepest recession since the Great Depression of the 1930s.
The IMF’s World Economic Outlook released on Tuesday cited lower-than-expected U.S. tariffs and easing financial conditions, in part due to a weaker dollar, as well as a boom in AI investment as one of the factors supporting U.S. and global growth this year.
But Grinchas said that even as non-tech investment has declined due to uncertainty over President Donald Trump’s tariffs, additional investment and consumption is increasing demand and inflationary pressures without accompanying productivity gains.
The IMF expects U.S. consumer price inflation to fall to 2.7% in 2025 and only 2.4% in 2026, Grinchas said. A year ago, the IMF predicted that U.S. inflation would return to the Fed’s target level of 2% this year.
Other factors keeping inflation high include a decline in U.S. immigration, which limits the labor supply, and the slow impact of tariffs on consumer prices.
“The impact of the tariffs is now trickling down. So far, the evidence suggests that importers are absorbing the impact of the tariffs on their margins and are not passing on as much to their end customers,” Grincha said. “Exporters are not paying.”
President Trump famously predicted that foreign countries would pay the price for his protectionist policies, a cost that exporters would absorb just to maintain a foothold in the world’s largest consumer market.
Mr. Grincha’s assessment is consistent with academic studies, research, and business leaders’ views that companies on the U.S. side of the border are eating up tariffs.
He said import prices have not fallen, so “exporters have not absorbed the tariffs.”
