Remember the dot-com crash? The Bank of England does—and it’s seeing worrying similarities in today’s AI stock frenzy.
The BoE’s Financial Policy Committee just sounded the alarm on “stretched” tech valuations, warning that AI hype could trigger a sharp market correction. Translation? We might be riding an AI bubble that’s ready to burst.
With US tech giants dominating global markets and UK growth plans hinging on massive AI investments, the stakes couldn’t be higher. Here’s what you need to know about the risk—and what it means for your money.
The AI Bubble: Dot-Com 2.0?
The Bank of England isn’t mincing words. Current market conditions are “comparable to the peak” of the dot-com bubble that imploded in 2000, wiping out trillions in investor wealth.
The worry? A “crystallisation of such global risks could have a material impact on the UK as an open economy and global financial centre.” Any sharp correction could ripple through market-based finance, making borrowing more expensive for households and businesses.
But try telling that to the deal-makers. OpenAI just inked a multi-billion dollar agreement with AMD for massive data centres. They’re currently juggling $1 trillion in deals—including a $300 billion partnership with Oracle and a $22 billion tie-up with CoreWeave.
The party’s still going strong.
Why Markets Keep Climbing Despite Bubble Warnings
Equity analysts at Barclays say a “liquidity glut and AI boom” are fuelling the rally. They’re watching the “froth” but still betting on upward momentum.
The culprit? Good old-fashioned FOMO. Fear of missing out drove September’s buying spree, with investors piling into AI stocks like there’s no tomorrow. Barclays acknowledges that “AI spending frenzy and circular funding” have raised legitimate bubble concerns—but momentum’s a powerful drug.
Lale Akoner from eToro puts it bluntly: “If sentiment turns, an AI-led sell-off could ripple across global markets.” Tech stocks carry massive weight in major indices and credit markets. A correction wouldn’t just ding Silicon Valley—it’d hammer portfolios, funding conditions, and market confidence worldwide.
Rachel Reeves’ £30bn AI Bet Looks Riskier Now
Chancellor Rachel Reeves just staked UK growth on AI investments from American tech titans.
During President Trump’s state visit last month, companies pledged over £30 billion in UK AI and cloud infrastructure. Microsoft committed £22 billion for Britain’s largest supercomputer. Nvidia and OpenAI announced plans for Europe’s biggest AI computing facility.
Nvidia’s CEO Jensen Huang was bullish, stating the investments would “improve productivity, expand markets, and create new product lines.”
But if the Bank of England’s “high risk” warning plays out? Those growth plans could unravel fast.
Market Concentration: The Real Danger
The unprecedented concentration is what’s keeping regulators up at night. The top five S&P 500 companies now control 30% of the index—a 50-year high.
The BoE’s Financial Policy Committee says this condensed power and soaring valuations leave “equity markets particularly exposed should expectations around the impact of AI become less optimistic.”
Put simply: when a handful of mega-cap tech stocks prop up entire markets, any stumble becomes a system-wide event.
Silver Lining? A Burst Bubble Could Help UK Stocks
Not everyone’s panicking. Some economists see opportunity in chaos.
If AI valuations crash, the valuation gap between UK and US stock markets could narrow. Joe Maher from Capital Economics notes: “If the AI bubble were to burst, we suspect the gap in valuations would shrink significantly but it would not disappear.”
Martin O’Sullivan, tech equity analyst at Shore Capital, takes the long view: “A short-term reset in valuations wouldn’t erase the structural growth potential of AI, especially as adoption matures and monetisation becomes more visible.”
A correction might hurt, but it won’t kill AI’s long-term prospects.
The Bottom Line
The Bank of England’s warning matters whether you’re invested in tech stocks or not. AI giants dominate global indices, meaning any sharp correction hits diversified portfolios too.
Keep an eye on market concentration, watch for shifts in AI sentiment, and remember that bubbles don’t announce themselves before they pop. The dot-com boom felt unstoppable too—until it wasn’t.
Stay informed, stay diversified, and maybe don’t bet the farm on AI hype alone.
FAQ
Q1: Is the AI boom really comparable to the dot-com bubble?
A: The Bank of England thinks so, citing similar valuation stretches and market euphoria. Current conditions mirror the dot-com peak before its 2000 collapse, though AI has more tangible applications than many late-90s internet companies.
Q2: What would trigger an AI market correction?
A: A shift in sentiment around AI’s actual impact versus expectations could spark selling. If AI monetisation disappoints or spending proves unsustainable, investors might reassess sky-high valuations quickly.
Q3: How would a crash affect the UK economy?
A: Given the UK’s £30bn+ in recent AI investment commitments and its role as a global financial centre, a correction could impact funding availability, business confidence, and economic growth plans. The government’s growth strategy is heavily tied to these tech investments.
Q4: Should I sell my tech stocks now?
A: That’s a personal decision based on your risk tolerance and time horizon. Diversification remains crucial—don’t let tech exposure dominate your portfolio just because of recent strong performance.
Q5: Could UK stocks benefit from an AI crash?
A: Potentially. A US tech correction could narrow the valuation gap between UK and US markets, making British stocks relatively more attractive. However, global contagion effects could still impact UK equities broadly.
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Effective Date: 15th July 2025
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