BOOM AND BURST

Financial experts warn a risky AI market bubble is forming. Consumer and money editor KATIE ELLIOTT reveals the steps you should take now to protect savings, pensions and investments

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WITH AI stocks skyrocketing to dizzying heights, caution bells are ringing across Threadneedle Street and beyond. The Bank of England has already flagged an AI "bubble" that could burst like the dotcom crash - sending shockwaves through the British economy.

Now, Microsoft founder Bill Gates has issued the same warning for global markets.

"There are a ton of these investments that will be dead ends," he told US broadcaster CNBC this week.

The so-called bubble refers to surging and unrealistic valuations of artificial intelligence companies, inflated by investor hype and speculation rather than sustainable profits. When a bubble occurs, it can set the stage for a sharp market correction, policymakers warn.

Companies like OpenAI are currently valued at $500billion (£372billion) around up from $157billion a year ago. One firm, Anthropic, has nearly tripled to $170billion since March.

However, the Bank of England's financial policy committee says Al-driven tech valuations look "stretched" - leaving markets vulnerable if optimism fades. It cautions that a "sudden correction" could "adversely affect the cost and availability of finance" for households and businesses.

Doubts are growing further after research from the Massachusetts Institute of Technology found 95% of firms have seen no return from generative AI, raising fears that disappointing progress could trigger a sharp sell-off in Al-related stocks.