AI BOOM STOKES FEARS OF GLOBAL MARKET TURMOIL SAYS BANK OF ENGLAND

The Bank of England has issued a stark warning that soaring valuations in American technology companies might be fuelling an artificial intelligence bubble reminiscent of the dotcom era. Officials noted that share prices of major tech giants have reached dizzying heights, creating an atmosphere where markets are highly sensitive to any shift in optimism surrounding AI’s potential.

American stock market indices are now dominated by a handful of large tech firms whose combined market share has reached its highest level in half a century. This extreme concentration heightens the risk for investors, as a downturn in AI-led companies could ripple swiftly across the indices and through global investment portfolios.

The Bank’s financial policy committee highlighted that current equity valuations, particularly in the United States, on some measures rival those seen during the peak of the dotcom bubble. Excitement over innovations from companies like OpenAI has driven investment and share prices upward, yet even industry veterans such as Sam Altman have cautioned about market overexuberance in this sector.

Other threats flagged include the mounting pressure on the independence of the US Federal Reserve, rising global public debt, and recent turbulence in the American auto lending and car parts sectors. French and Japanese political discord shows how debt and leadership changes are creating uncertainty, with knock-on effects in sovereign debt markets, tighter financing conditions, and potential capital flows away from vulnerable economies.

The committee acknowledged upside potential in AI, but stressed that any disappointment in capabilities or bottlenecks such as power and data limitations could rapidly deflate company valuations. The Bank cautioned that material setbacks or changes in AI infrastructure needs might cut short the extraordinary run in tech sector expectations.

Despite warnings of heightened risk, the Bank believes the British banking system remains resilient, with the capacity to support households and businesses even if market conditions worsen materially. For now, investors and policymakers alike are keeping a close watch for any cracks in the global financial system that may follow this period of exuberance in technology and AI.