An International Monetary Fund senior official has stated that debt issuance within the artificial intelligence sector may pose a more significant financial stability risk than stock valuations.

The IMF's Director of the Monetary and Capital Markets Department, Tobias Adrian, speaking at the European Central Bank's annual forum in Portugal, indicated that recent market performance does not necessarily signal a bubble, but he expressed concerns about corporate borrowing practices.

"From a financial stability standpoint, what is quite concerning is the fact that large technology companies themselves are starting to lever up," Adrian said on Tuesday in Sintra, Portugal. "There is a potential maturity mismatch between the physical assets and the debt."

Policymakers have publicly voiced worries that AI could trigger a market crash, with the Bank for International Settlements warning last Sunday that AI is one of four "pressure points" threatening global prosperity. European Central Bank official Isabel Schnabel also referenced the theme of an "AI-driven financial bubble" at the forum's opening.

Adrian observed that last week's stock market sell-off has altered the landscape to some degree.

"The valuation pressures that you saw recently have lessened quite a bit," he said. "Valuations are very closely linked to price-to-earnings, so that's partly because prices came down, and it's partly because corporate earnings continue to grow more than expected."

He stated that while investors hold "extremely aggressive" expectations for profitability in the AI sector, actual earnings performance is even better, suggesting market dynamics are "quite different from that bubble-like characteristic."

Meanwhile, the phenomenon of rising valuations for chipmakers while the software sector experienced "quite a sell-off" can also be seen as a healthy sign.

"In bubble-like behavior, you would expect market forces to be quite weakened," he said.

For him, the issue lies more with the fact that hyperscale cloud providers are investing in chips that could become obsolete "quite soon" while also issuing medium- and long-term debt.

"So as long as profitability continues, as long as firms and individuals are willing to pay for the cost of frontier models, that's probably fine," Adrian said. "But at some point, earnings may disappoint." He added, "Ultimately, the true profitability is the key issue for financial stability."

Adrian is set to leave the IMF at the end of August.