AI investment boom may lead to bust, but not likely systemic crisis, IMF chief economist says

Core Insights - The U.S. artificial intelligence investment boom may experience a downturn similar to the dot-com bubble, but it is less likely to cause a systemic crisis in the U.S. or global economy [1][4] Investment Trends - There are notable similarities between the late 1990s internet stock bubble and the current AI boom, with both periods driving stock valuations and capital gains to unprecedented levels, contributing to inflationary pressures [2] - Current AI investments are primarily funded by cash-rich tech companies rather than debt, which differentiates it from the dot-com era [3] Economic Impact - The current scale of AI investment is smaller than that of the dot-com era, with AI-related investment increasing by less than 0.4% of U.S. GDP since 2022, compared to a 1.2% increase during the dot-com boom from 1995 to 2000 [6] - Although the direct impact on financial stability may be limited, a correction in the AI sector could influence market sentiment and risk tolerance, potentially leading to broader asset repricing [7] Historical Context - The dot-com bust in 2000 was characterized by inflated valuations not supported by actual revenues, leading to a shallow recession in 2001, a scenario that could be mirrored in the current AI landscape if expectations are not met [5]