NEW DELHI — Former International Monetary Fund (IMF) chief economist Gita Gopinath has warned that the global artificial intelligence (AI) investment boom is approaching a potential valuation correction as companies may struggle amid fierce competition to recover the massive funds being poured into the technology, IANS reported on Sunday.

Source: IANS via Hi India

"I personally think that there will be a correction. It's impossible to tell when that correction will happen," the Harvard professor said while speaking on Raj Shamani's podcast. Nearly $1 trillion is projected to be spent globally on AI infrastructure and development in 2026 alone, as heavy investments flow into the technology in countries like the United States, South Korea and Taiwan, IANS reported.

Source: IANS via Hi India

Why the returns may not add up

Gopinath highlighted that the returns may not justify the scale of investment. "It's hard to explain how each of these labs and companies who are investing close to a trillion dollars now globally in AI just in 2026 will be able to make the kind of profits that are needed to recover that investment," she said, adding that in a hypercompetitive landscape it remains difficult to see how all competing firms can generate sufficient profits to justify their current valuations.

Source: IANS via Hi India

She warned that a significant market correction in AI valuations could heavily impact the US economy — which relies heavily on AI-driven wealth effects — potentially dropping US growth to zero or negative territory. Markets like the United States, Taiwan, and South Korea have surged due to high tech demand, but high interconnectivity means a downturn in one major AI player could quickly ripple worldwide, she said.

Source: IANS via Hi India

The circular-money risk

Gopinath stressed that the circular flow of money could lead to a correction in one part of the AI ecosystem spreading across the wider market, citing the example of Nvidia, a listed company, putting money into AI labs, which use it to buy Nvidia chips. "If Nvidia were to collapse or any one of the AI labs were to collapse, that would have implications for Nvidia," she said. She also cautioned young professionals against "cognitive surrender", urging people to avoid relying blindly on tools like ChatGPT or Claude instead of building independent problem-solving skills, IANS reported.

Source: IANS via Hi India