Bank of England says soaring Al valuations fuel risks of a sharp market correction

Stretched valuations for artificial intelligence companies and challenges to the US Federal Reserve's independence have fuelled the risks of a “sharp market correction”, the Bank of England (BOE) said on Oct 8.

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In its quarterly financial stability update, Britain’s central bank said asset valuations had continued to rise and credit spreads tighten since its June review, despite “persistent material uncertainty around the global macroeconomic outlook”.

Equity market valuations appear “stretched” with “technology companies focused on AI” particularly vulnerable, especially if “expectations around the impact of Al become less optimistic”, officials said, according to minutes of the Financial Policy Committee (FPC) meeting held on Oct 2.

Worries about a potential Al bubble have grown as a record-breaking rally in US stocks has lifted valuations.

The tech-heavy Nasdaq 100 Index is up 18 per cent in 2025, trading at 28 times forward earnings versus a 10-year average of 23.

That has sparked comparisons to the dot.com craze of the late 1990s that ended in a spectacular crash and a wave of bankruptcies, although some market participants including at Goldman Sachs have pushed back on bubble fears, and positioning indicators show investors remain bullish about further gains.