The Bank of England has warned that technology firms face significant vulnerability to sharp drops in their soaring valuations. The central bank's Financial Policy Committee (FPC) highlighted concerns that potentially disappointing progress in artificial intelligence development could trigger major market corrections.
The risk of a "sharp correction" in financial markets has increased according to the FPC's latest assessment. Committee members expressed particular concern about the concentrated nature of current market investments in AI-focused companies.
Stretched market valuations
The FPC's meeting minutes revealed that "on a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence." The committee warned that market concentration combined with elevated valuations creates heightened exposure to sentiment shifts around AI expectations.
Multiple factors could drive valuations lower across the tech sector according to the Bank's analysis. The FPC identified risks including "disappointing" progress on AI capability or adoption, increased competition, and "material bottlenecks to AI progress" affecting power, data, or commodity supply chains.
Current tech boom context
The warning comes during a period of unprecedented growth in technology company valuations driven by global AI adoption expectations. Major technology giants including Nvidia, Google, and Microsoft have experienced dramatic share price increases over the past year as investors bet heavily on artificial intelligence's transformative potential.
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
