(MENAFN) The Bank of England has issued a stark warning about the soaring valuations of technology firms, cautioning that a sharp decline could follow if advances in artificial intelligence (AI) fail to meet expectations.

Shares of major US tech giants like Nvidia, Google, and Microsoft have surged over the past year, fueled by optimism surrounding the global expansion of AI technology.

However, the Bank of England’s Financial Policy Committee (FPC) emphasized the increasing threat of a “sharp correction” in financial markets.

“On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence,” stated the minutes from the FPC’s most recent meeting. “This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”

The committee further warned that “disappointing” developments in AI’s capabilities or slower adoption, along with rising competition, could push valuations across the sector downward.

It also highlighted potential “material bottlenecks to AI progress,” including issues related to power, data, or commodity supply chains, which could negatively affect the value of companies anticipated to benefit from heightened AI investment.

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