A growing disparity between the dream of an AI-powered future and current economic reality is creating significant market risk, the Bank of England has cautioned. The Financial Policy Committee (FPC) stated that this disconnect has led to “stretched” valuations and an increased probability of a “sharp market correction.”
The dream is reflected in the massive valuations assigned to AI companies. OpenAI’s worth has skyrocketed to $500 billion, while Anthropic’s valuation has nearly tripled to $170 billion. The FPC warns that this market sentiment is based on future promise, leaving stocks highly vulnerable to a sell-off if that promise is perceived to be delayed or unfulfilled.
The economic reality is far more modest. A recent MIT study provides a stark contrast, showing that 95% of organizations investing in generative AI are currently reporting zero financial return. The Bank of England fears that once this reality fully registers with investors, it could “drive a re-evaluation of currently high expected future earnings,” leading to a market rout.
Adding to this precarious financial setup is a political threat emanating from the US. The FPC noted its concern over Donald Trump’s continued attacks on the independence of the Federal Reserve. The credibility of the Fed is a pillar of global financial stability, and any damage to it could have profound consequences.
The Bank warned that an erosion of Fed credibility could result in a “sharp repricing of US dollar assets,” causing turmoil and volatility across global markets. For the UK, the report concluded, the “risk of spillovers… is material,” meaning a crisis abroad could quickly translate into restricted credit and economic hardship at home.
AI Dream vs. Economic Reality: BoE Warns of Growing Market Disparity
