AI boom could end in bust, Bank of England warns
The Bank of England has issued a stark warning that surging investor enthusiasm around artificial intelligence could be fuelling an unsustainable bubble, raising the risk of a sharp market correction.
In its latest Financial Policy Committee update, the Bank cautioned that valuations tied to AI are becoming overstretched, leaving markets vulnerable if expectations on progress or profitability fail to materialise. The warning comes amid heightened global scrutiny of whether AI investment and stock prices are outpacing fundamentals.
Policymakers have cautioned that if the US Federal Reserve lost credibility to global investors, there could be a “sharp repricing of US dollar assets.”
Hyper around AI has seen a rise in valuations for companies such as OpenAI, which has jumped to a $500bn valuation from $157bn in a year, and Anthropic which has grown from $60bn valuation in March to a $170bn in September.
The Bank highlighted several potential triggers that could spark a correction, including slower than expected AI development, infrastructure bottlenecks or a shift in investor sentiment. Policymakers warned that such downturn could have significant spillover effects on the broader financial system.
Anssi Ruokonen, head of data and AI at Basware commented: “AI should be embraced – but its effectiveness depends on the quality and management of the data behind it. Our AI to ROI report shows that 94% of finance leaders are already using AI to streamline operations, and 73% report these investments improve compliance.
By analysing large volumes of financial data, reducing errors, and increasing transparency, AI delivers measurable ROI and strengthens decision-making. Without accurate, well-managed data and a clear strategy, the cost can be huge for organisations, risking compliance failures, inefficiency, and even stunting growth.”
This latest intervention comes as AI continues to dominate corporate strategies, capital flows and public discourse. While optimism remains high, the Bank’s warning underscores growing concern among regulators and policymakers about overheating in the sector.
Research from the Massachusetts Institute of Technology has also cast a shadow on the AI boom, highlighting that 95% of organisations are getting no return from GenAI investments.
Chris Davison, CEO of NavLive, commented: “AI is undoubtedly transformative, but the hype is running ahead of the infrastructure. Too many investments are being made on the basis of future potential rather than current capability, and deployment remains the real test. The breakthroughs that matter won’t come from speculation, but from solving complex, real-world challenges with AI that’s grounded in operational delivery.
The gap between ambition and execution is where many organisations stumble. Sustainable value depends on long-term delivery, interoperability, and the ability to integrate AI into physical environments, not just impressive demos or short-term market buzz. If expectations continue to outpace what’s practically deliverable, risk grows not just for investors, but for the businesses relying on returns that current infrastructure can’t yet support. We need to shift the focus from inflated projections to practical systems, executional readiness, and measurable results.
With AI’s role in markets only set to deepen, the Bank of England’s warning reinforces the urgency of examining both the risks and resilience strategies as adoption accelerates.