The Bank of England has raised the red flags about the growing risks of AI bubble bursting driven by the soaring valuations of AI tech companies in the backdrop of massive deals.
According to policymakers, the stock market is also reeling from a “sharp repricing of US dollar assets” if the global investors lose confidence in the Federal Reserve.
In recent months, the tech moguls’ companies have witnessed the sharp rise in valuations as OpenAI’s recent valuation reached $500 billion from $157bn in last October.
Anthropic’s valuation soared to $170 billion in September, going from $60bn in March.
Nvidia has also become the first tech company to exceed the $4.5 trillion market capitalisation.
Recently, Advanced Micro Devices (AMD) and OpenAI joined the partnership with the announcement of a multibillion-dollar deal.
Under this agreement, OpenAI will buy AMD’s chips for an undefined sum, in turn the company will be entitled to take a stake of as much as 10 percent in the semiconductor giant.
In addition, Nvidia has announced plans to invest $100 billion in ChatGPT maker OpenAI to establish 10 gigawatts of AI data centers.
However, the Bank of England’s financial policy committee (FPC) warned “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. This … leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”
The hype of the AI boom is getting dim as the research from the Massachusetts Institute of Technology showed that 95 percent of organizations are not receiving enough return from their investments in generative AI.
As the result of investors’ disappointment in AI deals, the stock market could collapse, leading to bursting of the bubble.