"As hundreds of billions of dollars flow into AI infrastructure building, the UK's central bank said: "On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on Artificial Intelligence (AI). This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic." Recent weeks have seen a merry-go-round of tech deals with AI, processor, and infrastructure vendors committing to spend with each other and swapping stock in order to fuel expansion."
""Equity market valuations had increased since Q2, to near all-time highs, partly driven by strong Q2 earnings of US technology firms," it said. "The price appreciation of the largest technology firms this year had increased the concentration within US equity indices to record levels. The market share of the top 5 members of the S&P 500, at close to 30 percent, was higher than at any point in the past 50 years.""
The Bank of England's Financial Policy Committee warned that equity market valuations appear stretched, especially for technology companies focused on Artificial Intelligence. Rapid inflows into AI infrastructure and large-scale commercial partnerships have driven strong share-price gains for major tech firms. The largest technology firms now represent a record concentration within US equity indices, with the top five S&P 500 members accounting for close to 30 percent of market share. Examples include Nvidia and AMD deals with OpenAI and Oracle's $455 billion cloud pipeline, with OpenAI reportedly committing $300 billion. Cyclically Adjusted Price-to-Earnings metrics are comparable to the peak of the dotcom era, raising correction risk.
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