Yes, machines hallucinate, proof of that is in the video below. I used a few tools to make the machines produce some hallucinations. 

Lucid Sonic Dreams by Mikael Alafriz, Google Colab Notebook can be found at https://colab.research.google.com/drive/1Y5i50xSFIuN3V4Md8TB30_GOAtts7RQD?usp=sharing

Visionary Art model weight by Jeremy Torman can be found at https://www.reddit.com/r/deepdream/comments/leqwxs/stylegan2ada_pickle_file_in_comments_with_colab/