The Bank of England (BoE) issued a sharp warning on 8 October 2025, cautioning that certain AI and technology stocks may be overvalued, particularly those heavily tied to high AI growth expectations. The warning does not apply to all companies that use AI.
The Financial Policy Committee (FPC) said stock values “appear stretched,” particularly for firms centred on artificial intelligence. It warned that this heightens the risk of a sharp market correction if confidence in AI’s potential weakens.
The BoE listed factors that could cause prices to fall:
- Disappointing progress or slow adoption of AI technology.
- Increased competition in the sector.
- Key bottlenecks, issues with power or data supplies.
The FPC noted these highly valued AI stocks suggest a potential bubble.
Why the BOE Is Concerned
The BoE’s warning is based on three main risks now building in financial markets:
- Extreme concentration: A small number of US tech giants dominate global stock indices, meaning too much money depends on too few companies.
- Investor euphoria: Market optimism is outpacing real earnings, leaving valuations disconnected from fundamentals.
- Potential triggers: Any disappointment in AI performance, profits, or regulation could cause a rapid sell-off across the sector.
Together, these factors could cause a sharp downturn that spreads well beyond tech shares.
How a Market Correction Would Unfold
A quick drop in investor confidence can cause a sudden market crash and trigger widespread financial scenarios. The following points detail how a rush to sell can lead to fast price drops, ripple effects, and tighter credit.
Fast price drops
AI and tech stocks could fall 10–20% within days if investor confidence weakens, causing immediate losses for investors and pension funds.
Ripple effects
Losses in tech shares could trigger selloffs across other sectors as investors move to safer assets, leading to broader market instability and sharp index declines.
Tighter credit
Falling asset values could make banks and other entities more risk-averse, limiting new lending and raising borrowing costs for households and businesses
Who Faces the Greatest Risk
The Bank of England’s warning affects a wide range of UK investors and the broader economy. Each face distinct but connected risks:
- Private investors may face immediate losses if AI or high-growth tech share prices fall, particularly for those with concentrated holdings in technology firms.
- Pension holders could see reduced retirement savings as UK pension funds, heavily invested in global tech indices, and lost value during a correction.
- The wider UK economy faces tighter financial conditions, with higher borrowing costs, weaker consumer confidence, and slower business investment threatening growth.
These risks highlight the BOE’s broader concern: inflated tech valuations could trigger a systemic correction, affecting both personal wealth and national economic stability.
BoE Warns AI Bubble Risks Shock; Investors Must Act Now
The BoE issued a rare warning, signaling serious concern about the market’s exposure. Global economic growth is slowing now. Yet, excitement for AI pushes share prices to record highs. This imbalance creates a risk of sudden shocks.
For Investors:
Investors should take a closer look at their portfolios now rather than waiting for a downturn. While AI and high-growth tech stocks have been strong performers, it may be wise to trim oversized positions and diversify steadier assets to cushion against potential losses.
Wider Mitigation:
Regulators could introduce new rules to reduce how much risk there is in the financial system. Stock exchanges may strengthen circuit breakers to pause trading during sharp swings, and central banks could tweak policy to keep markets stable.
Protect Your Portfolio
The BOE’s message is clear: the AI stock surge carries real risk. A defensive strategy and diversified investments can help safeguard savings.
Legend Financial offers expert analysis and tailored risk management strategies to protect your capital and pension funds. Book a free consultation today to review your exposure before markets shift.
