The Bank of England has cautioned that U.S. equity valuations are nearing their most elevated levels since the dot-com era, reflecting mounting anxiety over a potential downturn in AI-linked stocks.
In its latest Financial Stability Report, the Bank pointed to an increased “risk of a sharp correction,” echoing a pullback that marked the start of December on Wall Street.
It also noted that UK equity valuations are now the most stretched since the 2008 financial crisis, adding that overall financial stability risks have risen in 2025.
Tech shares have soared this year, with AI chipmaker Nvidia briefly reaching a $5 trillion valuation last month. Yet the Nasdaq Composite recorded its first monthly decline in eight months in November, as investors grew uneasy about lofty pricing. Losses persisted into the first trading session of December.
At the same time, the FTSE 100 has notched new record highs in 2025, outperforming gains in the S&P 500.
The Bank stated: “Equity valuations in the US are close to the most stretched they have been since the dotcom bubble, and in the UK since the global financial crisis. This heightens the risk of a sharp correction.”
It also flagged rising leverage among AI-focused companies, which have been borrowing heavily to fund infrastructure expansion. One projection suggests such investment could total $5 trillion over the next five years.
This leaves the financial system more exposed, the Bank warned, as “should an asset price correction occur, losses on lending could increase financial stability risks.”
