A “sudden correction” to the global market looms as the AI bubble prepares to burst, warns the Bank of England.

The Bank’s Financial Policy Committee (FPC) warned that rocketing valuations of tech firms are at risk of a sharp drop over the potential of “disappointing” return on investment from AI.

“The risk of a sharp market correction has increased,” the FPC said.

“On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence.”

This, the FPC says, “leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”

The committee’s minutes warned of “Material bottlenecks to AI progress – from power, data or commodity supply chains – as well as conceptual breakthroughs which change the anticipated AI infrastructure requirements for the development and utilisation of powerful AI models could also harm valuations, including for companies whose revenue expectations are derived from high levels of anticipated AI infrastructure investment.”

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The FPC warns that investors have not considered these potential risks in their finance plans or valuations, which could lead to a “sudden correction” should these concerns materialise.

“As an open economy with a global financial centre, the risk of spillovers to the UK financial system from such global shocks is material,” the FPC said.

It’s not only the Bank of England that is warning about the potential burst of the AI bubble.

Gartner has warned that the Agentic AI supply is currently exceeding demand, and the market is primed for correction. This news comes just as AI firms have been found to win nearly half of global venture capital in the third quarter of this year, as AI foundation model firms and compute companies continue to soar in their valuations.

Still, as more and more reports question the return on investment seen in rapid AI adoption,