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Doubts about the economic promise of artificial intelligence technology are beginning to catch the attention of financial institutions, which this week raised warning flags about an AI investment bubble.
Bank of England officials on Wednesday flagged the growing risk that the AI boom could send tech stock prices soaring.
Britain’s central bank said, “The risk of a sharp decline in the market has increased.”
head of International Monetary Fund Similar concerns were raised just hours after the Bank of England report.
“Global stock prices are being boosted by optimism about AI’s potential to increase productivity,” the IMF managing director said. Kristalina Georgieva Said.
But in a speech ahead of the organisation’s annual meeting next week in Washington he warned that financial conditions could “change suddenly”.
Is there an AI bubble?
“It’s obviously never easy to spot a bubble, but we can see that there are some potential symptoms of a bubble in the current situation,” said Adam Slater, chief economist at Oxford Economics.
Those symptoms include the rapid rise in tech stock prices, the fact that tech stocks now comprise nearly 40% of the S&P 500, market valuations that appear “extended” beyond their value and “a general sense of extreme optimism in terms of the underlying technology, despite huge uncertainties about what this technology might ultimately yield,” Slater said.
The most optimistic projections about the fruits of generic AI products predict a transformation of the economy, leading to annual productivity growth that Slater says has not been seen since the reconstruction of Europe after World War II. At the low end, Massachusetts Institute of Technology economist Daron Acemoglu predicts “non-trivial but modest” US productivity growth of only 0.7% over a decade.
“You have an incredibly wide range of possibilities,” Slater said. “No one really knows where it will land.”
Doubts about the value of top AI companies
Investors have closely watched a series of interconnected deals between top AI developers in recent months OpenAIThe creators of ChatGPIT, and the companies that make the expensive computer chips and data centers needed to power these AI products.
OpenAI doesn’t make a profit but the privately held San Francisco firm is now the world’s most valuable startup with a market valuation of $500 billion. It recently signed a big deal with chipmakers NVIDIAThe world’s most valuable publicly traded company, and its rival AMD.
The Bank of England did not name any specific companies, but said that “on many measures, equity market valuations appear overvalued, particularly for technology companies focused on artificial intelligence.”
The report said stock market valuations are “comparable to the peak” of the 2000 dotcom bubble, which then deflated and caused the recession. With a growing share of tech stocks in benchmark stock indexes, stock markets are “particularly exposed if expectations about the impact of AI become less optimistic.”
The bank outlined so-called downside risks, including shortages of power, data or chips that could slow AI progress, or technological changes that could reduce the need for the type of AI infrastructure currently being built around the world.
The IMF’s Georgieva said current stock valuations are “moving toward levels seen during the Internet boom about 25 years ago. If a sharp correction occurs, tighter financial conditions could drag down world growth,” she said.
what the tech boss says
Tech company owners are giving less importance to those who waste money.
The current AI boom is an industrial bubble rather than a financial or banking one and even if it bursts it will be beneficial to society, Amazon founder jeff bezos Said.
“The ones that are industrial are not nearly as bad. It may even be good because when the dust settles and you look at who the winners are, those inventions benefit society,” Bezos said at a recent tech conference in Italy.
He compared it to the previous biotech bubble of the 1990s that resulted in new life-saving drugs.
Bezos said the excitement over AI is drawing a huge wave of money to finance new business ideas, but it’s also clouding investors’ judgment.
He said, “Every company is funded, good ideas and bad ideas. And investors have difficulty distinguishing between good and bad ideas amid all this excitement and so perhaps that is what is happening today.”
On a tour of a Texas data center last month, OpenAI CEO Sam Altman predicted that people will “make some stupid capital allocations” and there will be short-term fluctuations of overinvestment and underinvestment.
But he added that “in the arc we have to plan on, we are confident that this technology will drive a new wave of scientific breakthroughs, improved quality of life and “new ways of expressing creativity”, as well as unprecedented economic growth.”
Awaiting the promise of more useful AI agents
Nvidia CEO Jensen Huang acknowledged in a CNBC interview on Wednesday that OpenAI doesn’t have the money to buy its own chips yet, but “they’ll have to raise that money through revenue, which is growing rapidly” as well as equity or debt.
Huang said he also believes there has been a shift as leading AI developers are moving from chatbots that were “fundamentally at a loss” because models “were not useful enough” to one in which AI systems are capable of high-level reasoning.
“It’s doing research before answering a question,” he said. “It goes out on the web and studies other PDFs and websites, it can now use tools, generate information for you, and it creates responses that are really useful.”
AI companies have spent more than a year introducing the transformative potential of “AI agents” that can go beyond the capabilities of chatbots by being able to access a person’s computer and perform tasks on their behalf. But as the early hype fades, Forrester analyst Sudha Maheshwari said businesses that want to buy these AI tools are taking a closer look at whether they are getting an adequate return on their investment.
“Every bubble inevitably bursts, and in 2026, AI will lose its luster, trading its tiara for a hard hat,” he wrote in a report Wednesday.
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O’Brien reported from Providence, Rhode Island and Abilene, Texas.