The Bank of England has issued a stark warning that stock valuations for companies in the United States are approaching their most overinflated levels since the infamous dot-com bubble. In the UK, valuations are nearing heights last seen before the 2008 financial crisis.
AI Sector a "Particular Hotspot" for Overvaluation
In its latest Financial Stability Report (FSR), published on Tuesday 2 December 2025, the Bank highlighted that share prices, especially for technology firms focused on artificial intelligence, remain "materially stretched". Governor Andrew Bailey identified the AI sector as a "particular hotspot", noting these valuations are at risk of a "sharp correction."
The report states that risks to overall financial stability have increased throughout 2025. Recent weeks have seen global markets rattled by investor fears of a potential AI bubble burst, following a period of heavy spending and booming valuations for major tech and AI companies.
Debt-Fuelled AI Spending Raises Systemic Concerns
A critical concern raised by the Bank is the rapid shift by tech firms towards debt financing to fund their massive investment drives. The FSR notes that the role of debt financing in the AI sector is "increasing quickly" as these companies seek capital for large-scale infrastructure projects.
By some industry estimates, global AI infrastructure spending over the next five years could surpass five trillion US dollars. The Bank expects large technology firms to fund roughly half of their AI infrastructure expenditure through external financing, predominantly via debt.
This growing interdependence between AI companies and credit markets means that any instability within the sector now risks spilling over into the wider economy and financial system, the report concluded.
Stress Tests for Private Credit Markets Planned
In response to these mounting risks, the Bank's Financial Policy Committee (FPC) is preparing to launch a dedicated assessment focused on dangers emanating from private credit markets. This sector has itself fueled financial stability worries in recent months.
The assessment will involve stress-testing firms operating in the private credit market against various hypothetical scenarios to gauge their resilience to economic shocks. Further details on this plan are scheduled for publication later this week.
Governor Bailey pointed to two high-profile US defaults in October – auto parts firm First Brands and car dealer and lender Tricolor – as events that have "intensified the focus on these issues." He emphasised that "maintaining a focus on financial stability is more important than ever" in the current global risk environment.
Despite these escalating concerns, the Bank's report offered a note of reassurance regarding domestic resilience. It concluded that the UK banking system remains robust enough to support households and businesses even if economic conditions deteriorate substantially.
