AI exuberance like dot-com boom: IMF

New Delhi: The International Monetary Fund (IMF) has cautioned that the surging investment in artificial intelligence echoes the of the late 1990s and it could pose risks. IMF chief economist Pierre-Olivier Gourinchas said in a blog after the release of the World Economic Outlook update that optimism is fuelling , lifting stock valuations, and boosting consumption via capital gains.

“This could push the real neutral interest rate upwards. Continued exuberance may require tighter monetary policy just as in the late 1990s,” said Gourinchas. “But there is also a flip side. Markets could reprice sharply, especially if AI fails to justify lofty profit expectations. That would dent wealth and curb consumption, with adverse effects potentially reverberating through the financial system,” the IMF chief economist cautioned in his blog under the sub-title “The AI surge, promise or peril?”

WEO also said an abrupt repricing of tech stocks could be triggered by disappointing results on earnings and productivity gains related to artificial intelligence (AI), marking an end to the boom and the associated exuberance of financial markets, with the possibility of broader implications for macro-financial stability.

It said that much of the year’s equity market gains have come from a rally in artificial intelligence (AI) stocks. “The stretched valuations and calm relative to the challenges raise the risk of market volatility and asset price correction should uncertainty start biting and economic indicators, including productivity gains from generative AI investments, start to disappoint.

“The decline in aggregate investment could be rather sharp, given that investment in data centers and AI was a significant contributor to investment growth recently,” according to the WEO. The report also said that artificial intelligence is reigniting productivity growth. “Faster AI adoption could help unleash strong productivity gains as firms increase uptake of the various AI-based tools being developed and deployed at high speed,” said the report.