The International Monetary Fund has issued a stark warning: the global economy faces serious risks from Big Tech's massive borrowing to build artificial intelligence data centers. In its latest Global Financial Stability Report, the IMF outlines how the AI industry's spending spree could precipitate a new financial crisis.
The report focuses on the financing methods of the world's largest data center operators, known as hyperscalers. These companies—including Oracle, Microsoft, Meta, Amazon, and Alphabet—are increasingly relying on debt as their free cash flows dwindle under the weight of AI investment.
“Hyperscalers have strong earnings from their core businesses,” the report states. “Yet, free cash flows are rapidly declining as hyperscalers try to sustain large AI investment needs, leaving debt financing increasingly necessary.”
Circular financing and systemic risk
The IMF also draws attention to so-called circular financing agreements, where one company funds another's AI project in exchange for the recipient purchasing the investor's products. Such arrangements, the report warns, create dangerous interdependence that could spark financial contagion if one firm fails.
“While investors… are generally financially sound, distress at key investee firms could present significant ‘wrong-way risk’ to the AI ecosystem,” the report says. “Equity and debt investments in the firms depreciate in value precisely when future revenue streams tied to them are impaired.”
Investment analyst Bret Jensen, writing on Seeking Alpha, examined the capital expenditure plans of the five largest hyperscalers. He noted a surge in debt and equity issuance over the past 12-18 months, with combined on-balance-sheet debt exceeding $1.3 trillion and roughly $3 trillion in off-balance-sheet commitments.
“Debt markets are starting to groan,” Jensen said, pointing to signals of a substantial default risk on Oracle's debt within five years. He also highlighted that half of the new infrastructure is being built for OpenAI and Anthropic, two frontier AI labs he described as “unprofitable” and “bleeding cash.”
Dean Baker, co-founder of the Center for Economic and Policy Research, argues that AI is currently propping up the US economy, with investors betting on an unprecedented productivity boom. But he sees little evidence that AI will deliver the gains needed to justify the historic investments.
“If we believe the hype, we are about to see an incredible surge in productivity that will make us ridiculously wealthy,” Baker wrote. “To date, there is no evidence to support this view. Productivity growth has been at best on its trend pace the last couple of years.”
He added: “If we don’t see the massive gains in productivity promised by the AI enthusiasts, then we will almost certainly see a collapse in the stock market, with a serious recession almost guaranteed.”
The IMF's warning comes as global markets grow increasingly jittery about the sustainability of AI-driven valuations. For Asia, where many of the world's data centers are located—from Singapore to Tokyo—the risks are particularly acute. A sharp correction in AI spending could ripple through supply chains and financial systems across the region.
As the debate intensifies, some policymakers are urging caution. The Bank of Japan's monetary experiment has already shown how fragile financial systems can become under stress. Meanwhile, the US-China AI race adds another layer of complexity, as Washington and Beijing vie for technological supremacy.
The IMF's report serves as a sobering reminder that the AI boom, while transformative, carries significant financial risks. Whether the industry can navigate these challenges without triggering a broader crisis remains to be seen.
