A new report from the Bank of England serves as a stark reminder to investors: do not conflate the hype surrounding artificial intelligence with real economic value. The Financial Policy Committee (FPC) warned that this confusion has led to “stretched” valuations and an increased risk of a “sharp market correction.”
The hype is undeniable, with firms like OpenAI and Anthropic achieving massive valuations of $500 billion and $170 billion. The FPC’s report suggests this is a narrative-driven market, not one based on current performance.
The economic value, however, is far from proven. An MIT study found that 95% of organizations are getting zero return from their generative AI investments. The Bank of England fears that when the market is forced to distinguish between the hype and the value, a painful correction will follow.
The FPC warned that such a correction would have broad consequences, potentially causing finance to dry up for the wider economy as risk appetite evaporates.
This precarious situation is compounded by political risks, specifically Donald Trump’s attacks on the US Federal Reserve’s independence. This adds another layer of uncertainty that could trigger a separate financial crisis. The FPC concluded that the UK is materially exposed to the fallout from this confusion.