{"id":61064,"date":"2025-10-08T11:07:07","date_gmt":"2025-10-08T11:07:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/61064\/"},"modified":"2025-10-08T11:07:07","modified_gmt":"2025-10-08T11:07:07","slug":"bank-of-england-flags-risk-of-sudden-correction-in-tech-stocks-inflated-by-ai","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/61064\/","title":{"rendered":"Bank of England flags risk of \u2018sudden correction\u2019 in tech stocks inflated by AI"},"content":{"rendered":"

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Surging valuations of artificial intelligence companies are intensifying the risk of a \u201csudden correction\u201d in global financial markets after equity prices reached levels comparable with the dotcom bubble, the Bank of England has warned.<\/p>\n

\u201cThe risk of a sharp market correction has increased,\u201d said the BoE\u2019s Financial Policy Committee, which oversees financial stability risks, in the record of its latest meeting on Wednesday.<\/p>\n

The dangers of a market reversal have been compounded by defaults in US automotive credit markets in recent months, the BoE<\/a> said, adding that these \u201cunderscore some of the risks\u201d it has been highlighting in market-based finance.<\/p>\n

Additional risks stem from rising political pressure on the US Federal Reserve, which \u201ccould result in a sharp re-pricing of US dollar assets\u201d and from uncertainty around \u201cpolitical deadlocks in France and Japan\u201d, which also threaten to disrupt debt markets.<\/p>\n

The BoE said that on a number of measures \u201cequity market valuations appear stretched, particularly for technology companies focused on artificial intelligence<\/a>\u201d.<\/p>\n

\u201cThis, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.\u201d<\/p>\n

It is the clearest warning to date by the BoE of the risks that an AI-led market bubble could burst. Its financial stability report in July only mentioned AI in the context of the risks from the technology\u2019s use by financial institutions. <\/p>\n

On Wednesday, the BoE pointed to the cyclically adjusted price-to-earnings ratio for US shares, which measures the earnings yield and has fallen \u201cclose to the lowest level in 25 years \u2014 comparable with the peak of the dotcom bubble\u201d.<\/p>\n

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\"A<\/a><\/p>\n

The S&P 500 index of larger US-listed companies is trading at a one-year forward price-to-earnings ratio of 25 times, which is \u201celevated relative to historical levels\u201d but below levels of the 2000 dotcom bubble, it added.<\/p>\n

The BoE said \u201cany AI-led price adjustment\u201d would have a greater impact on investors because of the higher concentration of tech companies in the overall market. The top five tech companies make up an all-time high of almost 30 per cent of the S&P 500.<\/p>\n

US credit markets have been shaken in recent weeks by the defaults of subprime auto lender Tricolor and car parts group First Brands<\/a>, which both relied heavily on loans from private credit providers and invoice financing.<\/p>\n

\u201cThese underscore some of the risks the FPC have previously highlighted around high leverage, weak underwriting standards, opacity, and complex structures,\u201d the BoE said.<\/p>\n

It added that credit market spreads, measuring the difference between interest rates for riskier borrowers and those considered safe, had fallen \u201cclose to historically low levels\u201d.<\/p>\n

But the BoE sounded more sanguine about the resilience of UK credit markets, saying household debt to income levels were the lowest since 2001 and company debt levels were \u201csignificantly below\u201d recent peaks,
while the UK banking system \u201cremained resilient\u201d.<\/p>\n

It added that \u201ca number of\u201d UK lenders had taken up the option provided by regulators to provide a higher share of mortgages with high loan-to-income ratios. The FPC is also reviewing the availability of finance for smaller UK companies.<\/p>\n","protected":false},"excerpt":{"rendered":"Stay informed with free updates Simply sign up to the UK financial regulation myFT Digest — delivered directly…\n","protected":false},"author":2,"featured_media":61065,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[345,343,344,85,46,125],"class_list":["post-61064","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-il","tag-israel","tag-technology"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/61064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=61064"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/61064\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/61065"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=61064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=61064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=61064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}