The towering valuations of companies in the artificial intelligence market are on shaky ground, a new report from the Bank of England suggests. The Financial Policy Committee (FPC) has warned that “stretched” equity prices, particularly in the tech sector, have increased the probability of a “sharp market correction.”
The committee’s analysis points to the phenomenal growth in the worth of AI firms like OpenAI ($500 billion) and Anthropic ($170 billion) as a key vulnerability. This growth has been driven by a wave of optimism, but the FPC fears that the market is “particularly exposed” should that optimism begin to wane.
There is growing evidence that a shift in sentiment may be warranted. A study from MIT, for instance, revealed that 95% of organizations are currently seeing no return on investment from generative AI. This disconnect between market hype and real-world results could trigger a “sudden correction” if investors lose patience.
The report also identifies a significant political risk that could exacerbate a market downturn. The FPC expressed concern over Donald Trump’s continued attacks on the independence of the US Federal Reserve, which could undermine global confidence in the US dollar.
A loss of Fed credibility, the Bank warned, could lead to a “sharp repricing of US dollar assets” and a surge in market volatility. The FPC was clear that the UK would be unable to avoid the fallout, stating that the “risk of spillovers… is material” and could threaten the flow of credit to British households and businesses.
