IMF: AI boom echoes dot-com bubble

Five AI companies are a third of S&P’s value

The International Monetary Fund (IMF) has warned that the current AI investment hype mirrors the excesses of the late 1990s dot-com bubble – though this bubble may not pop in the same way.

In its latest World Economic Outlook report, the IMF said the frenzy surrounding AI-related spending and valuation bears striking similarities to the internet boom that defined the turn of the millennium.

"There are echoes in the current tech investment surge of the dot-com boom of the late 1990s. It was the internet then. It is AI now," said Pierre-Olivier Gourinchas, the IMF's Director of Research.

Gourinchas said that surging valuations, heavy capital expenditure and robust consumer spending tied to AI have helped keep US economic growth strong. But he stopped short of predicting a market crash like the one that followed the bursting of the dot-com bubble in 2000, which cost the S&P 500 half its value in two years.

"Whether this will be followed by a market correction, I don't think anyone can tell for sure," Gourinchas added.

Today, just five tech firms make up about a third of the S&P’s value, to say nothing of the smaller AI companies and investments. If a crash does come, as we discussed in February, it will be brutal.

AI spending reaches historic levels

According to IMF data, AI-related capital expenditure is projected to reach 2% of US GDP this year.

Without that AI-driven investment, overall US business spending would likely be trending downward amid lingering uncertainty over the Trump administration's tariff policies.

The United States remains the clear global leader in AI investment, with tech giants Amazon, Meta, Microsoft and Alphabet collectively spending hundreds of billions of dollars to expand datacentres and fortify AI infrastructure.

This wave of spending has fuelled record stock market highs in 2025.

The 1990s dot-com boom saw investors pour billions into internet startups with little more than a website and a pitch deck, only for the bubble to burst when profits failed to materialise.

While today's AI leaders, including OpenAI, Nvidia and Microsoft, have real products and revenues, the scale of investment and speculation around AI's long-term potential has drawn comparisons to that earlier era.

The IMF’s warning echoes one issued by the Bank of England last week. Financial regulators seem alert to the risk, but investors remain optimistic (or blinkered. Delete as appropriate).

OpenAI's mega hardware push

The caution from the IMF coincides with a massive expansion by OpenAI, the company at the centre of the AI revolution.

On Monday, OpenAI announced a new hardware partnership with semiconductor giant Broadcom to co-develop and deploy 10 gigawatts' worth of custom AI accelerator hardware between 2026 and 2029.

Broadcom president and CEO Hock Tan called the deal "a pivotal moment in the pursuit of artificial general intelligence," adding that the partnership would "pave the way for the future of AI."

Though financial details were not disclosed, the Financial Times estimates that the Broadcom project could cost OpenAI between $350 billion and $500 billion.

The Broadcom agreement follows a flurry of massive AI infrastructure deals in recent months.

Last week, OpenAI announced a six-gigawatt chip purchase from AMD valued in the tens of billions of dollars.

In September, Nvidia revealed a $100 billion investment in OpenAI and a letter of intent to provide 10 gigawatts of AI hardware.

Also in September, reports surfaced that OpenAI had signed a $300 billion cloud infrastructure deal with Oracle, though neither company has confirmed the agreement.

This ‘circular financing’ is another element of AI investment that is raising red flags throughout financial circles.