The Bank of England has sounded the alarm over a potential bubble in artificial intelligence stocks, warning that a sharp correction in over-valued US tech firms could trigger a global financial shock.
In its starkest warning to date on the sector, the Bank said the surge in AI-driven valuations poses a “material” risk to the UK economy.
The Financial Policy Committee said: “On a number of measures, equity market valuations appear stretched – particularly for technology companies focused on artificial intelligence.”
It noted that the five largest firms on the S&P 500 now account for nearly 30% of the index — the highest level in half a century.
The Bank warned that markets may have only priced in upside potential, leaving them exposed if expectations falter.
“The risk of a sharp market correction has increased,” the FPC said. “A crystallisation of such global risks could have a material impact on the UK as an open economy and global financial centre.”
The Bank drew comparisons with the dotcom bubble, when exuberant bets on the internet ended in a major crash that took years to recover from.
The warning was echoed by IMF managing director Kristalina Georgieva, who said current valuations are “masking” fragilities.