The global market has made a great gamble on artificial intelligence, and the Bank of England is warning of a devastating bust if the bets don’t pay off soon. The Financial Policy Committee (FPC) stated that “stretched” valuations have increased the “risk of a sharp market correction.”
The scale of the gamble is immense, with investors pouring capital into firms like OpenAI and Anthropic, pushing their valuations to $500 billion and $170 billion respectively. These are bets on massive future profits.
However, early returns suggest the house may be winning. A recent MIT study found that 95% of companies are currently getting zero return on their AI investments. The FPC fears that if this trend continues, investors will fold, causing the market to collapse.
The Bank warned that such a bust would have wide-ranging consequences, leading to a credit crunch that would harm businesses and households far removed from the tech sector.
This high-stakes game is being played against a backdrop of significant political risk. The FPC also highlighted Donald Trump’s attacks on the US Federal Reserve as a threat that could trigger a separate financial crisis. For the UK, the FPC warns the “spillovers” from either a busted AI gamble or a US political shock would be “material.”