Global: Bank of England Warns of Potential AI Market Bubble

The Bank of England (BoE) has cautioned investors about the growing risk of a sharp correction in UK equity markets, warning that valuations of technology firms—particularly those linked to artificial intelligence—may be artificially inflated.

In its latest Financial Policy Committee (FPC) report, the central bank noted that stock valuations “appear stretched, particularly for technology companies focused on AI,” raising concerns about the potential for a downturn if market optimism over AI’s transformative potential fades.

While the BoE did not name specific firms, the warning draws parallels to the dot-com bubble of the early 2000s, when overvalued internet and e-commerce stocks collapsed, sending shockwaves through global markets.

The report underscores the heightened exposure of equity markets to shifting sentiment around AI’s real-world impact, cautioning that a loss of confidence could trigger a steep decline in asset prices.

AI-focused companies have seen rapid growth in recent months, with major developers expanding into new sectors. For instance, OpenAI’s recent acquisition of Roi, a personal finance app, signals deeper integration of AI into financial advisory services. At the same time, several large AI-driven firms have experienced surging valuations, contributing to the perception of a potential asset bubble.

The FPC report also cited broader economic pressures that could amplify market vulnerabilities, including geopolitical tensions, fragmentation of global trade, and stress in sovereign bond markets.

“Uncertainty around the global risk environment increases the possibility that markets have not fully priced in adverse outcomes,” the Bank stated. “A sudden correction could occur should any of these risks materialise.”

The BoE warned that such a correction could expose fragilities in market-based finance, potentially tightening credit conditions and raising borrowing costs for households and businesses.

The central bank’s message reinforces growing concerns that the AI investment boom, while transformative, could also be fueling speculative behaviour reminiscent of past financial bubbles.