Confabulation is a good term for the majority of what is currently termed AI hallucinations, but there is still a good proportion that is accurately called hallucination.

For instance, if you give AI a photo and ask it to describe in detail what it seems, it will often report things that aren’t there. That’s not confabulation, that’s hallucination. But if you ask a general knowledge question with no additional context and it responds with something untrue, then that would be confabulation, I agree.