The Bank of England has issued a warning that implies a widespread failure of risk management among investors, suggesting they are ignoring clear red flags in the artificial intelligence market. The Financial Policy Committee (FPC) stated that this oversight has led to “stretched” valuations and an increased risk of a “sharp market correction.”
One of the most significant red flags is the massive disconnect between valuations and profitability. The FPC implicitly points to the absurdity of firms like OpenAI being worth $500 billion when an MIT study shows 95% of businesses are getting no return from the technology.
Another red flag is the potential for “material bottlenecks” in the AI supply chain, a physical constraint that the market seems to be disregarding in its optimistic forecasts. The FPC warned that investors have not fully accounted for these risks.
A third, glaring red flag is the political pressure on the US Federal Reserve. Donald Trump’s rhetoric threatens the very foundation of global financial stability, yet markets have remained relatively calm. The FPC is concerned this calmness is complacency.
The Bank’s report is a call for investors to open their eyes to the dangers they are ignoring. For the UK, the warning is that when the market finally wakes up, the “spillovers” from the resulting correction will be “material” and unavoidable.