The Bank of England has warned about a “dotcom” style burst in the AI bubble that has sent share prices around the world soaring to record levels.
Officials at the Bank’s Financial Policy Committee (FPC) made comparisons with the boom in ‘dotcom’ stocks in the early days of the Internet in the late Nineties.
The FPC said: "The risk of a sharp market correction has increased” pointing out that share valuations “appear stretched, particularly for technology companies focused on artificial intelligence.”
It said valuations on some measures were similar to those at the peak of the dot com boom which peaked in March 2000 before a devastating crash sent shares falling by around 50%.
The MPC cautioned that current obsession for AI stocks left equity markets “particularly exposed should expectations around the impact of AI become less optimistic.”
The warning was echoed by the arguably the world’s most powerful banker, JP Morgan’s boss Jamie Dimon on a visit to Bournemouth yesterday.
In an interview with the BBC he said he was “far more worried than others” about a serious market correction, which he said could come in the next six months to two years.
He was in Bournemouth announcing an investment of about £350 million in JP Morgan's campus there.
He told the BBC: “The way I look at it is AI is real, AI in total will pay off.
"Just like cars in total paid off, and TVs in total paid off, but most people involved in them didn't do well."
He added some of the money being invested in AI would "probably be lost".
AI-focused tech stocks are concentrated in the US markets but Bank officials fear stock markets across the globe could also be caught up in any severe downturn.
The Bank of England highlighted that 30% of the US S&P 500's valuation was made up by the five largest companies, which was the greatest concentration in 50 years.
“Material bottlenecks to AI progress” including across power, data, or commodity supply chains could also harm valuations, particularly for firms who are expected to benefit from greater AI investment, the FPC said.
