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.
FTSE100
The UK's flagship share index, the FTSE 100, was up 11 point at 9,517 shortly after opening this morning.
Brent crude oil futures were up 0.58% at $66.39 a barrel.
Companies reporting today
- Volution Group - Full Year Results
- Ashoka India Equity Investment - Full Year Results
- Taiwan Semiconductor Manufacturing Co - Corporate Sales Release