The International Monetary Fund and the Bank of England warn that the AI ​​boom risks a “sudden” stock market correction

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The International Monetary Fund and the Bank of England have both warned that global stock markets are at risk of a sudden correction as the artificial intelligence boom pushes valuations towards dot-com bubble levels.

Kristalina Georgieva, managing director of the International Monetary Fund, said on Wednesday that bullish market sentiment about “the potential of artificial intelligence to boost productivity” could “suddenly shift,” affecting the global economy.

She was speaking hours after the Bank of England’s body overseeing financial stability risks drew parallels with the 2000 crash that followed the dot-com boom, warning of the risk of a “sudden correction” in global financial markets.

“Valuations today are heading towards the levels we saw during the internet bull run 25 years ago,” Georgieva said in a speech ahead of the International Monetary Fund’s annual meetings next week.

The statements of the Managing Director of the International Monetary Fund and the Bank of England are the clearest warnings yet by global officials that… Amnesty InternationalThe market bubble you are driving could burst.

Georgieva said optimism about artificial intelligence “ignited” markets and helped support the global economy. But she added that a sharp correction in stock prices “could reduce global growth, expose vulnerabilities and make life particularly difficult for developing countries.”

In similar language, the Bank of England’s Financial Policy Committee warned that “the risk of a sharp market correction has increased” in its latest meeting record on Wednesday.

She said the cyclically adjusted price-to-earnings ratio for US stocks, a closely watched measure of valuations, was close to levels of 25 years ago — “comparable to the peak of the dot-com bubble.”

The S&P 500 index of major US-listed companies trades at a one-year forward price-earnings ratio of 25 times, which is “high compared to historical levels” but below 2000 dot-com bubble levels, she added.

The index has risen 14 percent this year in a rapid recovery from the recession that followed Donald Trump’s “Emancipation Day” tariff announcement in April.

But Nvidia CEO Jensen Huang told CNBC on Wednesday that the current AI boom was “significantly different” from the dot-com bubble because the “super-scalers” — like Microsoft, Google and Meta — were much wealthier than their ilk. pets.comone of the most famous dot-com bubble era lists.

US Federal Reserve officials have downplayed the possibility of a damaging market correction. Mary Daly, president of the Federal Reserve Bank of San Francisco, said this week that the AI ​​bubble does not pose a threat to financial stability.

“Research and economics call it like a good bubble, where you get a lot of investment,” she told Axios. “Even if investors don’t get all the returns that early enthusiasts thought they would when they invest, that doesn’t leave us with nothing. It leaves us with something productive.”

The Bank of England argued that the risks of a market reversal had been exacerbated by defaults in US auto credit markets in recent months, adding that these “underscore some of the risks” it had been highlighting in market-based financing.

Additional risks stem from increasing political pressure on the Fed, which “could lead to a sharp repricing of US dollar-denominated assets” and from uncertainty over “political stalemate in France and Japan”, which also threatens to disrupt debt markets.

The Bank of England said that on a number of measures “stock market valuations appear to be stretched, particularly for technology companies focused on artificial intelligence.”

“This, when combined with increased concentration within market indices, leaves equity markets particularly vulnerable if expectations around the impact of AI become less optimistic.”

The Bank of England said that “any AI-led rate adjustment” would have a greater impact on investors due to the higher concentration of technology companies in the overall market. The five largest technology groups make up an all-time high of about 30 percent of the S&P 500.

US credit markets have been shaken in recent weeks by the defaults of Tricolor Bank and a subprime auto lender Top brands auto spare parts collectionboth of which rely heavily on loans from private credit providers and invoice financing.

“This highlights some of the risks previously highlighted by the Monetary Policy Committee around high leverage, weak underwriting standards, opacity and complex structures,” the Bank of England said.

He added that credit market interest rate spreads, which measure the difference between interest rates for riskier borrowers and those considered safe, had fallen “near historically low levels.”

Georgieva said that the artificial intelligence boom and the weak dollar helped ease financial conditions and lift the economy Global economy.

The head of the International Monetary Fund said: “We see global growth slowing only slightly this year and next. All evidence indicates that the global economy has generally withstood severe pressures resulting from multiple shocks.”

Additional reporting by Tim Bradshaw in London