The Bank of England has issued a stark warning that the soaring valuations of artificial intelligence companies leave them “particularly exposed” to a sudden and sharp market correction. The bank’s Financial Policy Committee (FPC) believes that investor optimism has pushed valuations to “stretched” levels, increasing the overall risk in global equity markets.
The committee pointed to the tech sector, where AI-focused firms have seen their market capitalization explode. OpenAI’s valuation has surged to $500 billion, while Anthropic’s has nearly tripled to $170 billion in mere months. The FPC’s concern is that this growth is built on hype, and any disappointment in AI’s progress could trigger a rapid sell-off, with devastating consequences for investors.
Recent evidence suggests that such disappointment may be on the horizon. A report from the Massachusetts Institute of Technology found a significant lack of return on investment for the majority of companies experimenting with generative AI, with 95% reporting zero gains. The Bank warned this could “drive a re-evaluation of currently high expected future earnings,” leading to a market tumble.
Adding to the complexity of the global financial picture, the FPC also highlighted political risks stemming from the United States. Donald Trump’s administration has continued to make comments that threaten the independence of the US Federal Reserve, a cornerstone of global economic stability.
A loss of confidence in the Fed’s autonomy could cause a “sharp repricing of US dollar assets,” including US sovereign debt, and lead to a spike in volatility worldwide. The FPC stressed that the UK is not insulated from these dangers. As a global financial hub, Britain faces a “material” risk of “spillovers” that could disrupt its financial system and harm the broader economy.
