The Bank of England has cautioned that global financial markets face a growing risk of a “sudden correction,” raising fresh concerns over the soaring valuations of major AI technology firms.
In its latest warning, the Bank’s Financial Policy Committee (FPC) pointed to heightened vulnerabilities stemming from inflated tech valuations and potential instability in US dollar assets. It said a “sharp repricing” could unfold if the Federal Reserve were to lose credibility with investors — a risk amplified by ongoing political pressure and repeated attacks on the Fed’s independence by Donald Trump.
Driven by continued enthusiasm and optimism around artificial intelligence, valuations of key AI players have surged dramatically in recent months. OpenAI’s valuation has jumped to $500bn (£372bn) from $157bn a year ago, while rival Anthropic has nearly tripled in worth, rising from $60bn in March to $170bn last month.
“The risk of a sharp market correction has increased,” the FPC said. “On several indicators, equity market valuations appear stretched, particularly among AI-focused technology firms. This leaves markets highly exposed should expectations about the impact of AI become less optimistic.”
The committee warned that investors may not have fully priced in the potential risks, cautioning that “a sudden correction could occur” if confidence falters. Such a shift, it said, could choke off financing for households and businesses, with significant spillover effects for the UK’s financial system given its position as a global financial hub.
Adding to the uncertainty, new research from the Massachusetts Institute of Technology revealed that 95% of companies are seeing no tangible returns from their investments in generative AI. The findings have intensified fears that inflated expectations could trigger a broader market downturn if the technology’s real-world impact falls short.
The FPC concluded that such a scenario “could prompt a re-evaluation of currently high expected future earnings,” potentially exposing the fragility of the ongoing AI-driven market rally.
It added: “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 utilisation of powerful AI models could also harm valuations, including for companies whose revenue expectations are derived from high levels of anticipated AI infrastructure investment.”
