The IMF’s worried about rising AI debt

The global AI investment boom is increasingly relying on debt, raising the risk that a slowdown in spending on AI could trigger a broader market correction, the IMF warns in its October 2026 Global Financial Stability Report (pdf).

The report underscores how crucial AI investment has become to the global economy — especially as it has helped to offset the economic drag from the Iran war. But the huge scale of borrowing and financial leverage tied to the sector is creating new vulnerabilities, the report says, even as major AI labs continue to whisper on background about strong growth in revenues.

Big-time borrowing: Hyperscalers — the cloud computing and data center companies operating at global scale — accounted for 10% of global investment-grade corporate bond issuance in 2026, up from less than 1% in 2024.

These companies remain profitable, but their free cash flow is declining rapidly as they increase spending on infrastructure, making debt financing increasingly important.

An economic slowdown isn’t the only worry. The emergence of cheaper AI models could also intensify competition and undermine the expected returns from massive AI infrastructure investments being backed by the frontier labs.

Adding to the risk: AI companies are increasingly investing in, lending to, and buying from each other. The IMF counted about USD 1.4 tn in future spending that these companies have promised to each other for services and chips. Because these deals are concentrated among a handful of big players, trouble at one could easily spread to the rest.

Warning to MENA+: Major economies whose stock markets are closely tied to AI face the greatest risk if the industry stops raking in so much money. But emerging markets face consequences too, the IMF warned. The organization also sounded the alarm about AI-enabled cyber threats and urged emerging markets to improve their cyber hygiene.

Flashback: As we reported on Tuesday, IMF Managing Director Kristalina Georgieva warned at the IMF and World Bank’s annual meetings in Bangkok this week that AI could be a “slow-moving tsunami” for entry-level jobs.