London: The Bank of England has warned of a "sharp correction" in the value of major tech companies with growing fears of an artificial intelligence bubble.
According to Kuwait News Agency, the central bank's financial stability report indicated that share prices in the UK are nearing the "most stretched" levels observed since the 2008 global financial crisis, while equity valuations in the US resemble those prior to the dotcom bubble burst. The report specifically highlighted that valuations are "particularly stretched" for companies focused on AI.
In its report, the Bank also announced plans to reduce the amount of capital High Street banks are required to hold, aiming to boost lending and spur economic growth. This marks the first reduction in the capital requirement for lenders since the 2008 financial crisis. The decision followed stress tests demonstrating that banks could withstand a crisis scenario with unemployment doubling, house prices plummeting, and the economy contracting by 5 percent.
The Bank of England noted that the growth of the AI sector in the next five years would be driven by trillions of dollars of debt, posing financial stability risks if the companies' values decline. Industry figures anticipate that spending on AI infrastructure could exceed USD 5 trillion, with around half of this funding sourced from outside, mostly through debt.
"Deeper links between AI firms and credit markets, and increasing interconnections between those firms, mean that, should an asset price correction occur, losses on lending could increase financial stability risks," the report stated.
The central bank further indicated that risks to financial stability had risen during 2025, attributing this to geopolitical tensions, global trade wars, and rising government borrowing costs. It noted that growing tensions have specifically raised the likelihood of cyber-attacks and other disruptions.
Following the assessment of High Street lenders' ability to manage a crisis situation, the Bank proposed lowering the benchmark for Tier 1 capital requirements for firms to 13 percent from the 14 percent level maintained since 2015. This requirement serves as the buffer banks must hold against potential losses from risky lending.