AI’s Promise vs. Profit: Bank of England Warns of Market Correction

A widening gap between artificial intelligence’s promise and its current profitability is creating a serious risk of a market correction, the Bank of England has warned. The Financial Policy Committee (FPC) stated that “stretched” valuations in the AI sector have made global equity markets increasingly vulnerable to a downturn.
The committee’s warning is rooted in the explosive growth of AI-related stocks. Companies like OpenAI and Anthropic have reached valuations of $500 billion and $170 billion, respectively, based on high hopes for future earnings. However, the FPC believes this optimism has created a fragile situation, “particularly exposed should expectations around the impact of AI become less optimistic.”
The basis for less optimism is growing. A landmark study from the Massachusetts Institute of Technology found that 95% of organizations are currently generating zero return from their generative AI initiatives. The Bank fears that as this reality becomes more widely understood, it could trigger a “re-evaluation of currently high expected future earnings” and a subsequent market crash.
In addition to this specific tech risk, the FPC highlighted a broader political threat to global stability. It noted Donald Trump’s ongoing rhetoric targeting the independence of the US Federal Reserve as a significant concern that could erode investor confidence.
A loss of faith in the Fed’s impartiality could spark a “sharp repricing of US dollar assets,” leading to global financial turmoil. The FPC emphasized that the UK, with its interconnected financial system, is not immune. The “spillovers” from such an event would be “material,” potentially causing a credit crunch for British businesses and consumers.