Bank of England warns of AI bubble
It may not come with an exclamation mark just yet, but the Bank of England is warning against inflated expectations and disappointing results in the global AI arena.
The Bank’s Fiscal Policy Committee has observed that the growth in company valuations on the stock market is running out of steam. This is especially true for tech firms that are heavily relying on the promise of AI.
“This makes stock markets particularly vulnerable if expectations surrounding the impact of AI become less optimistic.” And that would not be an unrealistic scenario.
For example, clients of AI giants may discover that the high hopes pinned on the new technology are not being fulfilled – or at the very least, not delivering the promised results. “That could lead to a revaluation of stocks that currently carry high expectations,” the bank says.
Other risks facing the emerging sector include issues with the availability of resources such as electricity, data, or computer components. Additionally, unexpected new inventions that change how we develop and use AI systems could damage company valuations.
Companies that expect to generate significant income from major investments in current AI infrastructure are especially at risk.
The BoE is not the first to warn about the risk of the AI bubble bursting. Deutsche Bank and Bain & Co. are more forthright. They argue that the current explosion in AI investment growth in the US is unsustainable. The bubble, they say, is masking the underlying decline of the American economy.
According to Deutsche Bank, the US economy would be in recession right now if the tech giants were not spending heavily on GPUs, buildings, and nuclear power plants. Bain & Co. calculated: “Two trillion dollars in annual revenue would be needed to finance the computing power required to meet the expected AI demand in 2030. But even with AI-related savings, the world would still fall $800 billion short to meet that demand.”
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