In a warning that carries echoes of the dot-com bust of 2000, the Bank of England has identified “stretched” technology valuations as a major threat to global financial stability. The Financial Policy Committee (FPC) stated that the “risk of a sharp market correction has increased,” with the artificial intelligence sector at the epicentre of its concerns.
The committee highlighted the extraordinary surge in the market worth of AI firms. OpenAI’s valuation has ballooned to $500 billion, while Anthropic’s has climbed to $170 billion. The FPC suggests this rapid appreciation is driven by speculative hype and leaves these stocks, and the broader market, highly vulnerable if the optimism fades.
Evidence is mounting that the hype may be premature. A recent study from MIT revealed that a staggering 95% of companies investing in generative AI have yet to generate any financial return. The Bank of England warned that this disconnect could cause a “sudden correction” if investors recalibrate their expectations for future earnings.
Beyond the tech bubble, the FPC is also concerned about political developments in the United States. Donald Trump’s sustained attacks on the independence of the US Federal Reserve are seen as a significant risk. The Fed’s credibility is vital for maintaining confidence in the global financial system.
A decline in that credibility could trigger a “sharp repricing of US dollar assets,” sending shockwaves across the world. The FPC stressed that the UK would be directly affected by such “global spillovers,” which could choke off the flow of finance to British businesses and households.