The Bank of England is growing increasingly worried about a potential AI bubble, and a recent MIT study showing minimal returns on AI investment is adding fuel to the fire. The bank’s Financial Policy Committee warned that with 95% of organizations getting zero return from generative AI, the “stretched” valuations of tech giants are built on a fragile foundation, and the “risk of a sharp market correction has increased.”
This warning comes as AI companies achieve astronomical valuations. OpenAI’s market worth has climbed to $500 billion, while Anthropic’s has surged to $170 billion. The Bank’s policymakers suggest that these figures are driven more by hype than by tangible results. They caution that equity markets are exposed to a sudden shock if investor sentiment sours or the technology fails to deliver on its grand promises in the near term.
The FPC elaborated on potential triggers for such a correction. Beyond a simple loss of optimism, “material bottlenecks” in the supply chains for power, data, or commodities could derail AI’s progress and puncture the high valuations. The committee stated that a “sudden correction could occur” if investors begin to account for these risks, leading to a chain reaction that could dry up financing for the wider economy.
Adding another layer of global risk, the Bank of England pointed to the political climate in the United States. Continued threats by Donald Trump against the independence of the US Federal Reserve are creating uncertainty. A perception that the Fed is no longer impartial could shatter investor confidence and lead to a rapid devaluation of US dollar assets, including government bonds.
For the UK, these distant tremors could cause a domestic earthquake. As a major hub in the global financial network, Britain is highly susceptible to “spillovers” from international shocks. The FPC explicitly warned that a dual crisis in the US tech market and its sovereign debt markets would materially impact the UK, restricting the flow of capital and harming both households and businesses.