Is the AI-Fueled Stock Boom a Bubble? Global Watchdog Warns of “Correction”

A leading global economic watchdog has raised red flags about the sustainability of the current stock market rally, warning that “stretched valuations” driven by generative AI hype could lead to a sharp “correction.” This financial risk is now considered a key threat to an otherwise resilient global economy.
The institution’s latest World Economic Outlook highlights that investment related to data centers and AI has been a major pillar of recent growth. However, it cautions that if markets reassess the near-term gains from this technology, the subsequent drop in share prices could trigger a “rather sharp” fall in aggregate investment, creating a significant economic headwind.
This warning about a potential AI bubble comes as the forecast for global GDP growth this year was actually upgraded to 3.2%. The report reconciles this by explaining that the economy’s “unexpected resilience” is partly due to temporary factors, such as consumers buying goods ahead of tariff implementations, which has masked deeper structural problems.
Among those problems, the delayed impact of US-led trade tariffs remains a primary concern. The full effect on business confidence and investment is expected to materialize over the coming months and years, leading to a “dim” long-term outlook despite the current positive data.
The UK’s economic situation is also precarious. While its growth for this year has been revised up to 1.3%, it is simultaneously facing the highest projected inflation rate in the G7 for 2025 and 2026. This, combined with the global risks of restrictive immigration policies and market volatility, paints a challenging picture for the years ahead.