Are you concerned about an AI bubble in stock markets? Have your say

Talk of a stock market bubble centred around AI has been ramping up, as valuations of companies operating in the sector have continued to push higher.

Last week, the Bank of England (BoE) Financial Policy Committee (FPC) warned of the dangers of an AI-triggered market slump, saying: "The risk of a sharp market correction has increased."

"On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence," the FPC said in a quarterly update. "This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic."

Meanwhile, International Monetary Fund (IMF) managing director Kristalina Georgieva warned in a speech last Wednesday that "valuations are heading toward levels we saw during the bullishness about the internet 25 years ago", referring to the "dot-com bubble" that burst in 2000 and saw stock markets plummet.

"If a sharp correction were to occur, tighter financial conditions could drag down world growth, expose vulnerabilities, and make life especially tough for developing countries," said Georgieva.

In addition, JPMorgan Chase (JPM) CEO Jamie Dimon said in an interview with the BBC last week that he was "far more worried" than others about a stock market correction.

"I would give it a higher probability than I think is probably priced in the market and by others,” he said. "So if the market’s pricing in 10%, I would say it's more like 30%."

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Dimon suggested that there were a lot of factors also fuelling uncertainty, including geopolitics, fiscal spending and the remilitarisation of the world.

The comments by from leading financial figures come as US tech stocks have continued to propel markets to fresh highs as they plough further investment into AI, with the S&P 500 (^GSPC) up 11.4% year-to-date, while the Nasdaq Composite (^IXIC) has risen nearly 15% in that time.

Ben Barringer, global head of technology research at Quilter Cheviot, said that there are "arguably good reasons to be cautious".

He pointed out that the 10 biggest companies in the S&P 500 make up 41% of the index, yet those same firms account for 35% of profits. "So there is a mismatch there, but not as pronounced as previous tech bubbles," he said.

"We are also seeing a huge amount of momentum from retail investors, desperate to get in on the trade and not miss out on potential gains," said Barringer. "This is usually the sign that a bubble is approaching dangerous territory."

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At the same time, Barringer highlighted that valuations remain "well below" previous bubbles. For instance, he said that back in the tech bubble of 1999-2000, valuations were at 60 times earnings, while the current level is approximately half of that.

"Ultimately the picture is uncertain and for investors this means diversification is crucial," he said. "We are not yet in bubble territory, but given how the market is beginning to raise some flags, it would be prudent to be cautious at this time."

Are you concerned about a AI bubble in stock markets? Vote in the poll below.

Yahoo UK's poll of the week lets you vote and indicate your strength of feeling on one of the week's hot topics. After the poll closes, we'll publish and analyse the results each Friday, giving readers the chance to see how polarising a topic has become and if their view chimes with other Yahoo UK readers.

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