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Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

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Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#21

Post by fasteo »

From the actual report[1]

>>> Despite persistent material uncertainty around the global macroeconomic outlook, risky asset valuations have increased and credit spreads have compressed. Measures of risk premia across many risky asset classes have tightened further since the last FPC meeting in June 2025. On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on Artificial Intelligence (AI). This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.

Actually, the quoted 'sudden correction' is not referring specifically to AI, but the market in general

[1] https://www.bankofengland.co.uk/financial-policy-committee-r...

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#22

Post by whimsicalism »

monero-xmr wrote: post #18
whimsicalism wrote: post #14

AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to either increase taxes or reduce spending. The dollar is not going to do well this century and creditors confidence is already starting to decline. In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.

There is only 1 solution to the global debt crisis and thats inflating the currency. They did it after WW2 and they will have to do it now. There is no other option. They can do it sneaky through fake measures of inflation, keeping a lid on cost of living adjustments, but ultimately they soak bond holders and standard of living. You see it everywhere in things they can’t inflate. The price of houses and gold most obv…

Monetizing a debt of this magnitude would be disastrous, but agreed this appears to be the path we are going on by default - given that we are consistently above the inflation mandate yet still lowering rates.

It's no longer the early 20th, there are other competitive & well-run jurisdictions for creditors to dump their money in if they lose faith in the US.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#23

Post by bgwalter »

Delphiza wrote: post #6

Also reported in the Guardian. https://www.theguardian.com/business/2025/oct/08/bank-of-eng... For non-brits, Bank of England the UKs central bank and is a lot like the US Fed. Their comments carry a lot of weight and do impact government policy. Not enough central banks were making comments about the sub-prime bubble that led to the 2008 crisis. Getting warnings about a possible AI bubble by a central bank is both s…

I like that the Bank of England spells out the "sudden correction" this time.

In 1996 Fed Chair Alan Greenspan warned about irrational exuberance, in 1999 he warned Congress about "the possibility that the recent performance of the equity markets will have difficulty in being sustained". The crash came in 2000.

The warning seems to have gone unnoticed. AMD just behaves exactly like Juniper in 1999.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#24

Post by CraigJPerry »

whimsicalism wrote: post #14

AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to either increase taxes or reduce spending. The dollar is not going to do well this century and creditors confidence is already starting to decline. In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.

>> sovereign debt burden

So all the entities that want to hold the debt (social security administration, mutual funds, pension funds etc) where should they go instead? Riskier assets is what you're saying right? Is that a great idea?

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#26

Post by whimsicalism »

Delphiza wrote: post #20
whimsicalism wrote: post #13

Earlier quoted context omitted.

Why is that obvious? Even with effectively complete stagnation and just existing technology + limited RLVR, I can see how this could be trillion-dollars level useful.

It is the financial risk that is obvious. The big players are struggling to show meaningful revenue from the investment. Because the investment is so high, the revenue numbers need to be equally high, and growing fast. The 'correction' is when (ok, if) the markets realise that the returns aren't there. The worldwide risk is that AI-led growth has been a large chunk of the US stock market growth. If it 'corrects' US g…

I think we have only scratched the surface of what we can do with the existing technology. A much more present risk from stagnation IMO is that if we stagnate, it is almost certain that the value of the tech will not be able to be enclosed /captured by its creators.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#28

Post by Esophagus4 »

Pxtl wrote: post #7

Seems obvious. AI is useful. But it's not trillion-dollars useful, and it probably won't be.

> But it's not trillion-dollars useful, and it probably won't be.

The market disagrees.

But if you are sure of this, please show your positions. Then we can see how deeply you believe it.

My guess is you’re short the most AI-exposed companies if you think they’re overvalued? Hedged maybe? You’ve found a clever way to invest in bankruptcy law firms that handle tech liquidations?

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#29

Post by alphazard »

whimsicalism wrote: post #14

AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to either increase taxes or reduce spending. The dollar is not going to do well this century and creditors confidence is already starting to decline. In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.

> either increase taxes or reduce spending

I see this sentiment a lot, they are not equivalent. The US must reduce spending, if it wants to protect the dollar. Tax increases may also help.

The relationship between tax rates, GDP, government revenue, the market value of new US debt, and the value of the dollar, is complicated and depends on uncertain estimates and models of the economy. Increasing taxes can reduce GDP, which needs to increase to outgrow the debt, there is an optimal tax rate, more doesn't always help. Decreasing spending is a more straightforward relationship, no new debt, no new dollars.

Re: Bank of England flags risk of 'sudden correction' in tech stocks inflated by AI

#30

Post by NewJazz »

whimsicalism wrote: post #16
Delphiza wrote: post #6

Also reported in the Guardian. https://www.theguardian.com/business/2025/oct/08/bank-of-eng... For non-brits, Bank of England the UKs central bank and is a lot like the US Fed. Their comments carry a lot of weight and do impact government policy. Not enough central banks were making comments about the sub-prime bubble that led to the 2008 crisis. Getting warnings about a possible AI bubble by a central bank is both s…

The mistake central banks made in 2007-2009* was keeping monetary policy far too tight for far too long, for no real discernable reason. Offering commentary on which particular sectors they feel are a 'bubble' is outside their purview and not particularly productive IMO, the state is not very good at picking winners. *edited to 2007

Sorry you think the government wasn't pumping the 2006 economy enough?
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