The valuations in the artificial intelligence market have become divorced from profitability, the Bank of England has cautioned, warning that this separation is a hallmark of a speculative bubble. The Financial Policy Committee (FPC) stated that this has increased the risk of a “sharp market correction.”
The valuations are astronomical, with OpenAI reaching $500 billion and Anthropic hitting $170 billion. These figures are based on future hopes.
The profitability, however, is almost non-existent for most, according to a recent MIT study. It found that 95% of organizations investing in generative AI have yet to see any financial return. The FPC fears this fundamental disconnect will eventually lead to a market crash.
The committee warned that such a crash would not be a contained event. It would lead to a broader tightening of financial conditions, making it harder for businesses and households to access credit.
This financial fragility is exacerbated by a significant political risk. The FPC is also concerned about Donald Trump’s attacks on the US Federal Reserve, which could trigger a separate crisis of confidence in the US dollar. The FPC stressed that the UK is highly exposed to the fallout from these issues, with “material” risk to its financial system.