**London, UK** – The Bank of England (BoE) has issued a stark warning that the burgeoning valuations of artificial intelligence (AI) companies are creating a stock market bubble reminiscent of the dot-com era's peak, posing a significant risk of a "sharp market correction." In its latest Financial Policy Committee (FPC) quarterly update, released on Wednesday, the central bank highlighted "stretched valuations" and an unprecedented concentration in market indices, cautioning that a sudden downturn could have material spillover effects on the UK's financial system and global economy. ^{[1][2][3][4][5][6][7][8][9]}### Echoes of the Dot-Com Bust The FPC's assessment draws direct comparisons between current AI-driven equity market valuations and the speculative fervor seen at the turn of the millennium, which ultimately led to a dramatic tech crash. P^{[2][3][10][11][7][8][12]}olicymakers noted that, on several measures, equity market valuations appear "stretched," particularly for technology companies heavily invested in AI. T^{[1][2][3][4][11][5][6][8][9]}his leaves equity markets "particularly exposed should expectations around the impact of AI become less optimistic," the BoE warned. ^{[1][2][3][10][4][11][5][6][8][9]}The current landscape is characterized by: * **Soaring Valuations:** Companies like OpenAI have seen their valuations skyrocket to $500 billion (£372 billion), a significant increase from $157 billion last October. Si^[1]milarly, Anthropic's valuation has nearly trebled from $60 billion in March to $170 billion last month. * ^[1] **Nasdaq 100 Performance:** The tech-heavy Nasdaq 100 Index has climbed 18% in 2025, trading at 28 times forward earnings, notably above its 10-year average of 23. * ^[4] **Market Concentration:** The five largest firms within the S&P 500 now constitute nearly 30% of the index's total value, marking the highest concentration in over half a century. Th^[13][2][10]is extreme concentration amplifies the market's vulnerability to shifts in AI sentiment. #^[13][2][10]## BoE's Concerns and Market Dynamics The Bank of England's concerns are not isolated. International Monetary Fund (IMF) Managing Director Kristalina Georgieva echoed the warning, stating that current valuations are "masking" underlying fragilities and are "heading toward levels we saw during the bullishness about the internet 25 years ago." Th^[13][11]e FPC emphasized that investors may not have fully accounted for potential downside risks, making a "sudden correction" a tangible threat that could lead to a drying up of finance for households and businesses. A^[1] recent study by the Massachusetts Institute of Technology (MIT) further fuels these concerns, revealing that 95% of organizations are currently seeing zero return from their investments in generative AI. Th^[1]is research suggests that investor expectations for future earnings, which are currently very high, could face a significant re-evaluation if the real-world progress and adoption of AI technology fall short of optimistic projections. #^[1]## Investor Sentiment and Broader Risks Beyond the direct valuation concerns, the Bank of England identified several material bottlenecks that could impede AI progress and subsequently harm valuations: * **Power Supply Constraints:** The immense energy demands of AI infrastructure could face limitations. * ^{[1][14][4][11][6][9]} **Data Limitations:** Access to sufficient and high-quality data remains a crucial bottleneck. * ^{[1][14][4][11][6][9]} **Commodity Supply Chain Issues:** Dependencies on specific commodities for AI hardware could lead to supply disruptions. * ^{[1][14][4][11][6][9]} **Conceptual Breakthroughs:** Unexpected technological advancements could alter anticipated AI infrastructure requirements, impacting existing investments. T^{[1][14][4][11][6][9]}he FPC also highlighted broader global risks that could exacerbate market instability. These include rising government borrowing across advanced economies, heightened geopolitical tensions, and the global fragmentation of trade. Cr^{[14][10][5][8][9]}ucially, the BoE expressed concern over threats to the independence of the U.S. Federal Reserve, citing past presidential interference and criticism. Ba^{[1][14][10][6][9]}nk of England Governor Andrew Bailey recently told the UK parliament he was "very concerned" about political threats to the Federal Reserve's autonomy, warning that a "sudden or significant change in perceptions of Federal Reserve credibility" could trigger a sharp repricing of U.S. dollar assets and global spillovers. W^[10][9]hile some economists, like Joe Maher of Capital Economics, suggest that a bursting AI bubble might narrow the valuation gap between UK and US stock markets, the overarching sentiment from central banks points to caution. Am^[3]azon founder Jeff Bezos offered a more optimistic view, suggesting that an "industrial bubble" in AI, unlike a financial one, could still benefit society in the long run, even if it bursts. T^[11]he Bank of England's latest warning serves as a critical reminder to investors and policymakers alike that while AI's transformative potential is undeniable, the current market exuberance carries substantial risks. The FPC's clear comparison to the dot-com bubble underscores the need for vigilance and a realistic appraisal of AI's economic returns to safeguard global financial stability.^{[2][3][10][11][7][8][12]}

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