For months, the global stock market has ridden a wave of excitement around artificial intelligence. However, the optimism is starting to look shaky.
At the forefront of everything is the Bank of England. In its latest Financial Policy Committee (FPC) report, regulators cautioned that investor faith in artificial intelligence may be dangerously balancing on the edge. The FPC warned on Wednesday that “the risk of a sharp market correction has increased… On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence. This … leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”
The report noted that valuations in AI-related tech stocks are now similar to those seen during the dot-com bubble, with just five firms making up an astounding share of the S&P 500. “The market share of the top 5 members of the S&P 500, at close to 30%, was higher than at any point in the past 50 years,” it added, noting if confidence wobbles further, markets could tumble fast.
Chief economic voice urges people to “buckle up” for changes
Almost immediately after, the International Monetary Fund added its voice. Its head, Kristalina Georgieva, urged investors to “buckle up” for abrupt changes. She acknowledged the excitement surrounding AI’s productivity gains, but warned that markets can reverse course rapidly if expectations outpace reality. “But before anyone heaves a big sigh of relief, please hear this: Global resilience has not yet been fully tested. And there are worrying signs the test may come. Just look at the surging global demand for gold,” she warned.
Adding more weight, giants of finance have begun to admit their own concerns. Jamie Dimon, CEO of JPMorgan, told the BBC he is “far more worried than others” about a potential market correction over the next six months to two years.
Meanwhile, Goldman Sachs’ David Solomon voiced caution as well. Speaking at a tech event in Italy, he admitted uncertainty about whether today’s AI boom is just hype. He compared the current enthusiasm to past periods of tech euphoria and warned of an inevitable “drawdown.”
“Markets run in cycles,” he said, “and whenever we’ve historically had a significant acceleration in a new technology that creates a lot of capital formation, and therefore lots of interesting new companies around it, you generally see the market run ahead of the potential. … There are going to be winners and losers,”
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At the heart of all this: a set of warning signs few want to ignore, and the AI-driven surge may be flirting with peril.
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