The Bank of England has raised alarms over a possible AI bubble risk, warning that a “sudden correction” in global financial markets could occur due to soaring valuations in the technology sector. Officials noted that strong investor enthusiasm around artificial intelligence has led to stretched equity prices, leaving markets vulnerable to rapid shifts in sentiment. According to the Bank’s financial policy committee (FPC), the sharp rise in valuations of major AI-driven firms has become a source of concern. The report stated that the risk of a sudden market correction has increased and that technology companies focused on artificial intelligence appear particularly exposed. The FPC explained that investor optimism may not match real economic performance. If expectations about AI’s long-term impact weaken, equity markets could face a significant decline. The committee noted that a drop in AI confidence might lead to reduced financing for households and businesses, amplifying financial instability worldwide. The warning follows a surge in valuations of leading AI companies. OpenAI’s value has soared to $500 billion, up from $157 billion last year. Anthropic, another AI firm, has nearly tripled its worth from $60 billion in March to $170 billion in September. Experts say such steep climbs suggest inflated expectations rather than sustainable growth. Recent research by the Massachusetts Institute of Technology added to market doubts. The study found that 95% of organizations implementing generative AI saw no measurable return on investment. This revelation has intensified fears that investors may have overestimated AI’s near-term benefits, leading to potential disappointment and falling stock prices. The Bank of England noted that several other risks could also disrupt the AI sector’s momentum. These include limited access to energy, data, and critical materials, as well as possible changes in how AI infrastructure is developed. Such factors, the FPC said, could “harm valuations,” especially for companies relying on projected infrastructure spending. As one of the world’s largest financial centers, the United Kingdom could face spillover effects if global investors lose confidence in AI or U.S. dollar assets. The Bank warned that “the risk of spillovers to the UK financial system from such global shocks is material.” The committee also expressed concern about the U.S. Federal Reserve’s independence amid ongoing political pressure. It said that any loss of credibility in the Federal Reserve could trigger a “sharp repricing of U.S. dollar assets,” leading to higher volatility in global markets. The Bank of England highlighted that comments undermining the Federal Reserve’s authority could destabilize the financial system. A shift in global confidence toward the U.S. central bank might raise borrowing costs and disrupt sovereign debt markets. The FPC further noted that unresolved impacts from trade policies continue to add uncertainty. Although past trade tensions have eased, the financial risks associated with them “have not yet been fully realized.” Analysts say the Bank’s warning serves as a reminder that AI-driven optimism must be matched by sustainable business results. As companies and investors continue to pour billions into artificial intelligence, policymakers are urging a more cautious approach to avoid a potential financial bubble similar to past market crashes. The latest statement from the Bank of England underscores the growing concern that unchecked enthusiasm for AI could lead to overvaluation and market instability. It calls for global coordination among financial regulators to manage these emerging risks and maintain investor confidence.