The Bank of England has warned of a growing risk of a “sudden correction” in global markets, raising concerns about soaring valuations of leading artificial intelligence (AI) companies. In its latest report, the Bank’s financial policy committee (FPC) said that “the risk of a sharp market correction has increased”, noting that equity market valuations appear stretched, particularly for technology companies focused on AI.
The FPC highlighted that continued hype and optimism about AI have driven valuations to extreme levels. For example, OpenAI is now worth $500bn, up from $157bn last October, while Anthropic has almost trebled its valuation from $60bn in March to $170bn last month. The committee warned that these high valuations leave markets exposed should expectations around the impact of AI become less optimistic.
Investors have not fully accounted for potential risks, the FPC said, warning that “a sudden correction could occur” if any of these risks crystallise, leading to a tightening of financial conditions for households and businesses. It added that as an open economy with a global financial centre, the UK is materially exposed to spillovers from such global shocks.
Recent research from the Massachusetts Institute of Technology has rattled faith in the AI boom, showing that 95% of organisations get zero return from their investments in generative AI. This has fuelled concerns that stock market valuations could tumble if investors are disappointed by the progress or adoption of AI technology. The FPC said this “could drive a re-evaluation of currently high expected future earnings”.
The committee also warned that threats to the independence of the US Federal Reserve from the Trump administration could trigger a sharp repricing of US dollar assets. It said a sudden change in perceptions of Fed credibility could lead to increased volatility and global spillovers, adding to the impacts of Trump’s trade wars, which have “not yet been fully realised”.
