A significant disconnect between the AI market’s hype and its real-world returns is raising alarms at the Bank of England. The bank’s Financial Policy Committee (FPC) has warned that this gap has created “stretched” valuations and an increased risk of a “sharp market correction” that could rattle the global economy.
The FPC pointed to the astronomical valuations of AI companies like OpenAI, now worth $500 billion, and Anthropic, at $170 billion, as evidence of a market driven by speculation. The committee fears that this optimism is fragile and that a sudden loss of confidence could lead to a rapid and damaging collapse in stock prices.
Reinforcing these concerns is a recent MIT study, which delivered a stark reality check: 95% of businesses are currently getting zero financial return from their investments in generative AI. The Bank of England warned that if investors begin to focus on this lack of profitability, it could “drive a re-evaluation of currently high expected future earnings,” triggering a market downturn.
Alongside the AI bubble risk, the FPC identified a major political threat. Donald Trump’s continued commentary challenging the independence of the US Federal Reserve is viewed as a significant danger to financial stability. The Fed’s credibility is essential for maintaining order in global markets and confidence in the US dollar.
Should that credibility falter, the FPC warned of a “sharp repricing of US dollar assets” and a surge in global volatility. The committee stressed that the UK would not be immune. As a major financial centre, Britain is susceptible to “spillovers” from such shocks, which could choke off the supply of credit to the domestic economy.