Tech firms are vulnerable to the risk that soaring valuations will drop sharply amid potentially “disappointing” progress around artificial intelligence (AI), the Bank of England has warned.
The risk of a “sharp correction” in the financial markets has increased, the Bank’s Financial Policy Committee (FPC) said.
The minutes of the FPC’s latest meeting read: “On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence.
“This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”
It said there was a risk that “disappointing” progress on AI capability or adoption, or increased competition could drive valuations lower across the sector.
“Material bottlenecks to AI progress” including across power, data, or commodity supply chains could also harm valuations, particularly for firms who are expected to benefit from greater AI investment, the FPC said.
It comes at a time that valuations for tech firms have boomed amid expectations that the adoption of AI technology will ramp up around the world.
Huge technology companies like Nvidia, Google and Microsoft have all seen their share prices soar over the past year.