A painful reality check is coming for the artificial intelligence market, a new report from the Bank of England implies. The Financial Policy Committee (FPC) warned that a “sharp market correction” is increasingly likely as the gap between hype and actual performance becomes impossible to ignore.
The hype is reflected in “stretched” valuations, with firms like OpenAI and Anthropic reaching market capitalizations of $500 billion and $170 billion, respectively. These values are based on the promise of future earnings.
The reality, however, is detailed in research from MIT, which found that 95% of organizations are currently getting zero financial return from their AI investments. The FPC fears that the inevitable collision of market expectations with this reality will trigger a “re-evaluation” of stock prices.
This potential tech correction is made more dangerous by concurrent political risks. The Bank of England is also sounding the alarm on Donald Trump’s rhetoric concerning the US Federal Reserve, which it sees as a threat to the institution’s critical independence.
A loss of credibility for the Fed could lead to a “sharp repricing of US dollar assets,” a separate but equally damaging shock. The FPC concluded that the UK is highly vulnerable to these events, and the “material” risk of “spillovers” could severely disrupt its financial system.
