IMF monitoring AI developments, too early to say if AI reassessment underway

The International Monetary Fund (IMF) is closely monitoring volatility in AI equity valuations and the US political shift that could slow data center development, but says it is too early to tell whether investors are souring on the sector for the long term.

IMF spokesperson Julie Kozack told a regular press briefing that AI equity valuations remain exposed to a reassessment of the longer-term profitability of the technology. “That overall view that we have taken still remains the case,” she said.

The resignation of Nvidia CEO Jensen Huang sent the company’s shares sharply lower on Thursday, dragging down the S&P 500 and Nasdaq indexes, but some major tech stocks rose, including Nvidia rival Advanced Micro Devices, Alphabet and Microsoft.

Asked about the impact on the AI sector from the stock gyrations, as well as pledges by newly elected Democratic governors to slow data center development, Kozack said: “We’re of course are closely monitoring the most recent developments and their impact on equity markets, the economy, and financial stability, but at this point it’s really too early to say whether there’s going to be some broader reassessment of investment in AI technology and any broader reassessment of profitability and future productivity gains.”

Kozack also said it was too early to determine any impact on US inflation pressures from possible shifts in AI investment “just based on what we’ve seen in the past hours, weeks, and days.”

She said the IMF views the increased demand created by AI investment and data center construction as one of the two major contributors to US inflation, along with elevated energy prices caused by the Iran war and closure of the Strait of Hormuz.

The IMF believes that the Federal Reserve will still need to maintain restrictive US monetary policy to bring inflation back to its 2% target, Kozack said.

“Our view is that a restrictive policy stance will be necessary going forward to support disinflation and bring inflation gradually back to target. We fully support the Fed’s focus on price stability and its readiness to act as needed to bring inflation down,” Kozack said.