Company stock valuations in the US are close to being the most stretched since the “dot-com bubble” and in the UK since the 2008 financial crisis, the Bank of England has warned.
Share prices, particularly for technology companies focused on artificial intelligence (AI), remain “materially stretched” and at risk of a “sharp correction”.
The Bank’s latest Financial Stability Report (FSR) found that risks to stability have increased in 2025.
Investor concerns about the looming threat of an AI bubble bursting have shaken up the global financial markets in recent weeks.
It follows a period where big tech and AI firms have been spending heavily and benefited from a boom in the valuation of their business.
Tech firms are increasingly turning to debt finance to fund their investment drives, the Bank warned in its latest report.
The FSR read: “The role of debt financing in the AI sector is increasing quickly as AI-focused firms seek large-scale infrastructure investment.
“By some industry estimates, AI infrastructure spending over the next five years could exceed five trillion US dollars.”
Large tech firms are expected to fund about half their spending on AI infrastructure through external financing, mostly through debt.
Deeper links between AI firms and the credit market means any instability risks spilling over to the wider economy and financial markets, the report found.
Despite the growing risks, the UK banking system remains sturdy enough to support households and businesses even if economic conditions got substantially worse, the Bank concluded.
