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https://www.theguardian.com/business/2025/oct/08/bank-of-england-warns-of-growing-risk-that-ai-bubble-could-burst>
"The Bank of England has warned there is a growing risk of a “sudden
correction” in global markets as it raised concerns about soaring valuations of
leading AI tech companies.
Policymakers said there were also threats of a “sharp repricing of US dollar
assets” if the Federal Reserve lost credibility in the eyes of global
investors. It comes as Donald Trump’s continues to attack the US central bank
and threaten its independence.
Continued hype and optimism about the potential for AI technology has led to a
rise in valuations in recent months, with companies such as OpenAI now worth
$500bn (£372bn), compared with $157bn last October. Another firm, Anthropic,
has almost trebled its valuation, going from $60bn in March to $170bn last
month.
However, the Bank of England’s financial policy committee (FPC) warned on
Wednesday: “The risk of a sharp market correction has increased.
“On a number of measures, equity market valuations appear stretched,
particularly for technology companies focused on artificial intelligence. This
… leaves equity markets particularly exposed should expectations around the
impact of AI become less optimistic.”
It said investors had not fully accounted for these potential risks, warning
that “a sudden correction could occur” should any of them crystallise,
resulting in finance drying up for households and businesses. The FPC added:
“As an open economy with a global financial centre, the risk of spillovers to
the UK financial system from such global shocks is material.”
Faith in the AI boom has recently been rattled by research from the
Massachusetts Institute of Technology, which showed that 95% of organisations
are getting zero return from their investments in generative AI.
That has fed into concerns that stock market valuations could tumble if
investors ended up being disappointed by the progress or adoption of AI
technology. The FPC said this “could drive a re-evaluation of currently high
expected future earnings”.
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.”
The committee also said the Trump administration’s continued threats against
the US Federal Reserve were putting financial stability at risk."
Cheers,
*** Xanni ***
--
mailto:xanni@xanadu.net Andrew Pam
http://xanadu.com.au/ Chief Scientist, Xanadu
https://glasswings.com.au/ Partner, Glass Wings
https://sericyb.com.au/ Manager, Serious Cybernetics
