The Bank of England’s financial policy committee (FPC) warned that “the risk of a sharp market correction has increased” amid fears that the artificial intelligence (AI) bubble could burst.
The Bank noted that the equity market valuations appear stretched, which leaves them exposed should expectations around the impact of AI become less optimistic.
The International Monetary Fund (IMF) echoed the Bank of England’s concerns, noting similar vulnerabilities in global financial markets tied to inflated AI valuations.
Kate Leaman, chief market analyst at AvaTrade, said, “The concerns around a potential “sharp market correction” in the context of AI valuations are understandable.
“Over the past year, the pace of investment in the AI sector has been extraordinary, with valuations in some cases outpacing actual revenue or commercial maturity. That said, the underlying technological progress and the breadth of applications being developed justify part of this optimism. AI is not just another tech trend but a foundational shift that’s still in an early growth phase.
“The risk isn’t necessarily that the AI sector itself is overvalued, but that expectations in public and private markets may be running ahead of near-term fundamentals. Corrections or valuation adjustments could happen, but they’d likely be part of a natural rebalancing as the market distinguishes between sustainable business models and speculative excitement.
“Overall, some caution is certainly warranted – but this shouldn’t be characterised as a ‘bubble’ in the traditional sense. The long-term value creation potential of AI remains substantial, even if short-term volatility increases.”
