The Bank of England (BoE) says the AI boom is stretching stock valuations to risky levels, warning that a correction could ripple across global markets.
Its Financial Policy Committee (FPC) highlights parallels between today’s AI mania and previous speculative cycles, noting that concentration in major tech firms has reached record highs.
The committee says markets remain vulnerable to a sudden shift in macroeconomic factors.
“Risks associated with geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt markets remain elevated. The risk of a sharp market correction has increased.”
While global uncertainty remains high, the Bank notes that investors continue to pour money into risk assets.
“Despite persistent material uncertainty around the global macroeconomic outlook, risky asset valuations have increased and credit spreads have compressed. Measures of risk premia across many risky asset classes have tightened further since the last FPC meeting in June 2025.”
The committee says equity valuations “appear stretched,” particularly for technology firms linked to artificial intelligence, where optimism about future profits has driven record concentration in market indices.
“On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on Artificial Intelligence (AI). This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”
The FPC notes that the top five US technology firms now account for nearly a third of the S&P 500’s total value, the highest share in half a century, while valuation ratios for some AI companies imply aggressive future earnings growth.
The Bank also cautions that AI progress could slow due to real-world constraints, including power and data shortages, potentially triggering a reassessment of lofty expectations.
“Material bottlenecks to AI progress – from power, data, or commodity supply chains – as well as conceptual breakthroughs which change the anticipated AI infrastructure requirements for the development and utilization of powerful AI models, could also harm valuations.”
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