Bank of England, The Royal Exchange and statue of the Duke of Wellington in the city of London on February 19, 2025 in London, United Kingdom.
Mike Kemp | In pictures | Getty images
On Wednesday, the Bank of England warned that the risk of a “net market correction” increased, noting that the evaluations seem stretched, in particular for technological companies focused on artificial intelligence.
The Central Bank becomes the last of a long list of banks and investors to assess if a bubble of AI is formed while the markets check in the fourth quarter.
Increased geopolitical tensions, fragmented trade and financial markets and pressures on the sovereign debt markets play in risk, said the Bank of England in a record of its last minutes of meeting.
“A crystallization of these global risks could have a material impact on the United Kingdom as an open economy and a global financial center,” he said.
The equity market assessments have been raised at almost all time, the Bank of England said, thanks in part to solid profits from the second quarter by American technological companies.
“The market share of the 5 main members of the S&P 500, almost 30%, was higher than at any time in the past 50 years,” he said, noting that assessments of AI technological companies seem particularly stretched.
“This, when combined with an increasing concentration within the market indices, leaves the stock markets particularly exposed if the expectations concerning the impact of the AI become less optimistic,” said the report of the meeting. With such high expectations concerning the growth of future profits, any decline in AI-related bets could cause training effects, he added.
Investors are looking closely at AI actions at the start of the winning season, certain confident strategists that the evaluations of technological companies are motivated by solid fundamentals. Goldman Sachs also remained carefully optimistic in his last note, believing that a bubble has not yet formed but has taken into account a warning to investors to “diversify”.
The president of the Federal Reserve, Jerome Powell, however warned assets “quite appreciated” on Tuesday, although he did not explicitly refer to technological companies.
The Bank of England also warned that “the downward factors included disappointing progress on AI capabilities / adoptions or increased competition, which could stimulate the re -evaluation of future expected future income”.
“The bottlenecks of materials to the progress of AI – of power supply chains, data or basic products – as well as conceptual breakthroughs which modify the IA infrastructure requirements provided for the development and use of powerful AI models could also harm the evaluations, including for companies whose income expectations are derived from high levels of Infrastructure of IA high, “added.
Meanwhile, the private credit market has recently suffered, as a result of news that the First Brands and the tricolor automotive financing company have filed for bankruptcy. Meanwhile, political uncertainty in France and Japan persists and the questions remain on the interference of American president Donald Trump in the federal reserve, adding to the darker perspective of the Bank of England.
Changes in the risk landscape “increase the risk that the markets were not entirely evaluated in possible negative results, and a sudden correction could occur if one of these risks crystallize,” said the Bank of England.
As such, this could have a training effect for households and businesses in a market that already feels pinching thanks to the high costs of life and borrowing costs, he added.
