TL;DR

The Bank of England has flagged stretched valuations of AI companies as a risk to Britain’s financial stability in its half-yearly update. The central bank warns that financial system risks have increased during 2025, citing AI valuations alongside private credit lending and gilt repo trading.

Central Bank Sounds AI Valuation Warning

The Bank of England’s latest Financial Stability Report identifies artificial intelligence company valuations as a source of concern for the UK financial system. The central bank warns that “risks to financial stability have increased during 2025,” with stretched valuations in the AI sector featuring among key risk factors.

The warning arrives as AI-focused companies command premium valuations globally, with investors betting on transformative potential that has yet to translate into proportionate revenues for many firms. The central bank’s inclusion of AI valuations alongside more traditional concerns—private credit lending to large corporations and certain government bond trading—signals that regulators are monitoring the sector’s market dynamics closely.

Broader Risk Landscape

The Bank of England’s concerns extend beyond AI to encompass macroeconomic uncertainty and geopolitical pressures. The report notes that “global risks remain elevated and material uncertainty in the global macroeconomic outlook persists.”

Key sources of identified risk include geopolitical tensions, fragmentation of trade and financial markets, and pressures on sovereign debt markets. These factors combine to create an environment where asset valuations may be particularly vulnerable to correction.

Looking Forward

For UK businesses with AI investments or exposure to AI-focused companies, the central bank’s warning warrants attention. While the report does not recommend specific actions, its identification of AI valuations as a systemic risk factor suggests prudent investors should stress-test portfolios against potential corrections in the sector.

Source: Reuters