"On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on Artificial Intelligence, it said. This, when combined with increasing concentration within market indices, leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic."
"Today's valuations are heading toward levels we saw during the bullishness about the internet 25 years ago."
"But we're not quite in bubble territory yet, the BoE said. While the earnings yield implied by the Cyclically Adjusted Price-to-Earnings (CAPE) was 'comparable to the peak of the dotcom bubble', it said, future predictions were rather lower."
"That said, the underlying technological progress and the breadth of applications being developed justify part of this optimism. AI is not just another tech trend but a foundational shift that's still in an early growth phase, she said."
Markets face an elevated risk of a sudden correction because equity valuations appear stretched, especially for technology companies focused on Artificial Intelligence, and concentration within market indices has increased exposure. Significant bottlenecks to AI growth include uncertainties around power, data, and commodity supply chains. Potential conceptual breakthroughs could alter the infrastructure needed for powerful AI models. Valuation metrics such as CAPE show earnings yields comparable to dot‑com peaks, though forward predictions are lower. Rapid investment has pushed valuations ahead of revenue in some cases, while technological progress and broad application development support continued long‑term optimism about AI's role.
Read at IT Pro
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