Bank of England has published a financial stability report warning of potentially sharp declines in the valuations of major technology companies due to growing concerns about an artificial intelligence bubble. According to the report, share prices in the United Kingdom are close to their highest levels since the 2008 global financial crisis, while in the United States they resemble the situation before the dotcom bubble burst. Valuations are particularly high among companies focused on artificial intelligence. The report was published six days ago and highlights how growth in the artificial intelligence sector over the next five years could be financed by trillions of dollars in debt, posing risks to financial stability if the valuations of these companies were to decline.
Bank of England Governor Andrew Bailey told a press conference that the artificial intelligence sector in the United States is highly concentrated and accounts for a large proportion of the value of the country’s stock market. He noted that, unlike during the dotcom era, these companies have positive cash flows and are not based solely on hopes. However, he added that not everyone in this sector will benefit equally and mentioned the recent debate about whether Google is encroaching on Nvidia’s territory. Andrew Bailey hopes that artificial intelligence will become another technology that boosts productivity growth in economies, but stressed that this remains to be seen.
Corporate collapses as a warning sign
In October this year, Governor Andrew Bailey warned the House of Lords committee that the collapse of two US companies – auto parts supplier First Brands and auto loan provider Tricolor – could indicate deeper problems in the financial system. He said it was important to take these failures very seriously and compared them to the situation before the 2008 financial crisis. According to him, it is not yet clear whether these are isolated cases or a "canary in the coal mine," which would signal more serious problems in the private credit sector, where companies obtain loans from non-bank lenders.
Andrew Bailey noted that complex loan structures, such as the splitting and layering of credit, are beginning to emerge in private credit, reminding him of the alarming warning signs from the period before the 2008 crisis. At the time, subprime mortgages were thought to be too small to cause a systemic crisis, but this proved to be a mistake. Similarly, Jamie Dimon, CEO of US bank JP Morgan, warned in October that the failure of these companies could be a sign of further problems, comparing it to seeing one cockroach, which probably means there are more.
Debt risks in the AI sector
According to the Bank of England report, the growth of artificial intelligence could require more than $5 trillion (approximately CZK 115 trillion) in infrastructure investment, with a large share financed through debt. Roughly half of this money is expected to come from external sources, primarily debt. The Bank warns that deeper ties between artificial intelligence companies and credit markets, together with growing interconnections among these companies, could lead to loan losses and threaten financial stability if asset prices fall.
The International Monetary Fund and the Organisation for Economic Co-operation and Development have also warned of possible price corrections. The dotcom bubble in the late 1990s led to a rapid rise in the valuations of early internet companies due to optimism surrounding the new technology, but it burst in 2000, causing corporate failures, job losses, and declines in the value of savings, including pension funds. Similar concerns are now emerging at a time when Chancellor Rachel Reeves is encouraging people in the budget to invest in shares rather than cash ISAs.
Risks to financial stability increased in 2025 due to geopolitical tensions, trade wars, and rising government borrowing costs. Growing tensions between countries increase the likelihood of cyberattacks and other disruptions.
Sources: bbc.com and bbc.com
