Follow Slashdot stories on Twitter

 


Forgot your password?
Close
typodupeerror
United Kingdom AI

UK's Central Bank Warns of Growing Risk That AI Bubble Could Burst (theguardian.com) 82

Posted by msmash from the sounding-alarm dept.
The Bank of England has warned there is a growing risk of a "sudden correction" in global markets as it raised concerns about soaring valuations of leading AI tech companies. From a report: Policymakers said there were also threats of a "sharp repricing of US dollar assets" if the Federal Reserve lost credibility in the eyes of global investors. It comes as Donald Trump's continues to attack the US central bank and threaten its independence.

Continued hype and optimism about the potential for AI technology has led to a rise in valuations in recent months, with companies such as OpenAI now worth $500 billion, compared with $157 billion last October. Another firm, Anthropic, has almost trebled its valuation, going from $60 billion in March to $170 billion last month.

However, the Bank of England's financial policy committee (FPC) warned on Wednesday: "The risk of a sharp market correction has increased. "On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence. This ... leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic." It said investors had not fully accounted for these potential risks, warning that "a sudden correction could occur" should any of them crystallise, resulting in finance drying up for households and businesses. The FPC added: "As an open economy with a global financial centre, the risk of spillovers to the UK financial system from such global shocks is material."
This discussion has been archived. No new comments can be posted.

UK's Central Bank Warns of Growing Risk That AI Bubble Could Burst More

UK's Central Bank Warns of Growing Risk That AI Bubble Could Burst

Comments Filter:
  • Wait, are you telling me that the Emperor's newest outfit isn't the most beautiful in all the land? I was told only the ill-cultured and unintelligent nabobs would fail to be dazzled!

    • Re:Such beauty (Score:5, Insightful)

      by AmiMoJo ( 196126 ) on Thursday October 09, 2025 @10:00AM (#65714270) Homepage Journal

      From the summary it sounds like it's not the bubble bursting that they are worried about, it's that Trump might massively devalue the US Dollar by taking control of the US Central Bank. Once it loses its independence and is subject to the whims of a man whose companies have been bankrupt many, many times, it will become another joke currency and not the world reserve it once was.

      • Re: (Score:2)

        by skam240 ( 789197 )

        From the summary it sounds like it's not the bubble bursting that they are worried about, it's that Trump might massively devalue the US Dollar by taking control of the US Central Bank. Once it loses its independence and is subject to the whims of a man whose companies have been bankrupt many, many times, it will become another joke currency and not the world reserve it once was.

        This is a big one and given the dollar's influence around the world it will effect everybody.

      • It sounds to me like The Guardian wants people to think that, because they hate Trump. I don't seriously think that other central bankers are legitimately concerned about a dispute over one governor. I'm noting that they say, "policymakers are concerned", which to me sounds like, "politicians are concerned", and their concerns are going to be rooted in partisanship. Maybe they mean (supposedly) apolitical bank policymakers, but I have no faith in The Guardian's ability to fairly or accurately report anyt
      • ....that natural stupidity is even more dangerous than artificial intelligence.

    • Re:Such beauty (Score:4, Interesting)

      by hey! ( 33014 ) on Thursday October 09, 2025 @10:45AM (#65714390) Homepage Journal

      There's no doubt that AI is developing into a useful tool -- for people who understand its limitations and how long it is going to take to work the bugs out. But people have a long track record of getting burned by not understanding the gap between promise and delivery and, in retrospect, missing the point.

      I think we should take a lesson from the history of the dot com boom and following bust. A lot of people got burned by their foolish enthusiasm, but in the end the promise was delivered, and then some. People just got the timescale for delivering profits wrong, and in any case their plans for getting there were remarkably unimaginative, e.g., take a bricks and mortar business like pet supplies and do exactly that on the Internet. They by in large completely missed all the *new* ways of making money ubiquitous global network access created.

      I think in the case of AI, everybody knows a crash is coming. In fact they're planning on it. Nobody expects there to be hundreds or even dozens of major competitors in twenty years. They expect there to be one winner, an Amazon-level giant, with maybe a handful of also-rans subsisting off the big winner's scraps; tolerated because they at least in theory provide a legal shield to anti-trust actions.

      And in this winner-take-all scenario, they're hoping to be Jeff Bezos -- only far, far more so. Bezos owns about 40% of online retail transactions. If AI delivers on its commercial promise, being the Jeff Bezos of *that* will be like owning 40% of the labor market. Assuming, as seems likely, that the winning enterprise is largely unencumbered by regulation and anti-trust restrictions, the person behind it will become the richest, and therefore the most powerful person in history. That's what these tech bros are playing for -- the rest of us are just along for the ride.

      • And in this winner-take-all scenario, they're hoping to be Jeff Bezos -- only far, far more so. Bezos owns about 40% of online retail transactions

        I am not an expert in AI by any means, but my guess is the bigger risk to AI investment is that it will soon be extremely easy and cheap to create your own AI bot, and AI bots will proliferate and be everywhere. They've opened the box and AI is spilling out everywhere, and these companies have very little control over what is happening with the monster they created. How do you monetize that?

        In addition, the rate of change in AI is so rapid that as soon as you think you have a good one that people might pay

  • Economists please break it down (Score:3)

    by kencurry ( 471519 ) on Thursday October 09, 2025 @09:10AM (#65714166)
    Okay, it will burst. But how did it inflate? so where does "money" come from and where did it go?

    • There's a breakdown here [bsky.app]

      • Shrinking workforce, less people that pay more in tax than they receive and wealthy taxpayers immigrating to other countries and you have a long term slide with a declining tax base.

        The UK government cannot get out of this by following a raise tax rates forever plan.

        The longer term effect is that the UK will be a hostile place for companies, wealthy people and eventually have to fund their government overspending by paying bondholders ever increasing interest rates.

        The net effect will be that younger worker

    • The money came from you (Score:5, Insightful)

      by rsilvergun ( 571051 ) on Thursday October 09, 2025 @09:26AM (#65714196)
      The top 1% have had approximately 50 trillion with a t dollars moved into their pockets in the last 40 years. They can basically splash money everywhere and anywhere at the slightest whim because they've taken so much from you. It is the single largest wealth transfer in human history.

      As for how it inflated modern ai, AKA machine learning and llms, has the potential to replace trillions of dollars of human labor every year. Whoever controls that becomes a God among men.

      The elites are thinking about a post capitalist future. But not the puppies and kittens socialist happy future that hippies think of. What they're thinking of is a world without money because they own absolutely everything and commerce doesn't happen anymore because they are simply the ones who decide who gets anything.

      It's called techno feudalism and I'm really surprised how few nerds here have heard of it.

      I think it's really hard for us Americans especially to grasp because it involves the death of capitalism and we have been explicitly taught to think of capitalism as the only form of organizing the distribution of goods and services. A lot of us know vague notions of Communism or socialism but what the top 1% are planning doesn't map to any of the systems that we have been taught. It's entirely new and I don't even think I've seen a book right about the kind of dystopia they are planning

      • For those thinking this is some hyperbole one of the current Republicans and techbros like Thiel's thought leaders (and JD Vance has said as such multiple times) is Curtis Yarvin who is an anti-democratic monarchist: Yarvin argues for American monarchy at closed-door debate [yaledailynews.com].

      • Are you talking about the nonsense that comes out of those "World Economic Forum" meetings? It sounds like you are, because they're the ones talking about owning nothing and fundamentally altering the economic system.

        That's a very left-wing group. They're people who reaped the benefits of Capitalism to become wealthy (though I think the leader inherited his) and now want to tear it down. It is hard to see their plans as anything but nefarious, as they do come across as what you describe. Which would

      • Re: (Score:2)

        by RobinH ( 124750 )
        There's a logical discrepancy in your thinking. Assuming our new leaders figured out how to make machines that were 100% obedient and could do anything that humans could do, they wouldn't then use that to enslave us. There would literally be no use for us. They'd exterminate us. We can only exist so long as we are useful to someone who is willing to trade the necessities of life for what we have, or we can forcibly take what we want, or we can forcibly hold on to enough land to eke out an existence, and

      • Whatever the rich people are thinking about, I'm pretty sure it has nothing to do with imaging a world without money. Money is literally what they live for, every second of every day. Why on earth would they imagine a future without it?

        • ... every second of every day.

          Translation: What I know is the the only thing that matters.

          This is the self-important stupidity driving MAGA: Notice where that took the USA?

          Money is stuff rich people can own, it is stored labour and thus is a proxy for difficulty of making (or, in the case of bling, owning) something. If a king (or Trump) owns everything, then money has limited purpose because he can't buy anything. At best, he can trade his wealth for someone's labour. But if he owns everything, the labour force is at his mercy

          • While I agree completely with your assessment of Donald Trump, this doesn't lead to the conclusion you suppose.

            I suggest you read Dr. Seuss's Yertle the Turtle. Yertle believed he was king of everything he could see. So he stacked up turtles so he could climb higher and see more, thus ruling more. But in the end, a turtle at the bottom of the stack burped, causing the whole stack to topple, ending Yertle's reign.

            Though this is a children's book, the application here is profound. Trump will indeed try to ama

        • Money is merely a proxy for power over others. If they own that power anyway, money becomes irrelevant.

          • You are assuming that "the rich" are a homogenous group, that they are conspiring together. The reality is, "the rich" do not have common goals. They are literally competing against each other, playing a sort of "king of the hill." When one gets to the top, the others try to dethrone him. This competition will keep money relevant for, basically, ever.

    • Re:Economists please break it down (Score:5, Insightful)

      by RobinH ( 124750 ) on Thursday October 09, 2025 @09:38AM (#65714214) Homepage

      I'm not an economist, but the fundamental issue is that we take the last price that something sold (like a stock) as the actual real price of all the stock of that company.

      So if you were holding 100 shares of Nvidia stock which you bought in January 2024 for $50 each, you would think you had $5000 of stock at that time. Recently people have been trying to buy Nvidia stock and have pushed up the price to nearly $200. You look at that and think, "Wow! I have $20,000 now!". And as a small investor, sure, you could unload those 100 shares for close to $200 and take that profit.

      The "real" value of a company is actually the net present value of all it's future income. But the future growth (or decline) of a company is uncertain, so people who buy stocks are betting on what they think the future income of the company will be. A lot of people are buying Nvidia because they think AI will produce so much future value that Nvidia will make enormous profits in the future. And some people are just buying Nvidia because of the logical fallacy that stocks that are increasing in value will continue increasing in value.

      You don't actually have to believe that the future of AI is bright yourself. You can ride the price of the stock higher as long as lots and lots of other people believe AI will be huge in the future and Nvidia will be part of that.

      But once evidence comes to light that AI isn't all it's cracked up to be, then people's perceptions of how much Nvidia might pay out in future profits can drop substantially. When that happens, lots of people who own Nvidia stock will want out, and fewer people will want to buy it, and the price will drop like a rock (maybe even back to that $50 level). That's just supply and demand.

      Did any money go anywhere? No, it just got shuffled around. Some people won and some lost, but there's no more or less money in the system. What there is right now is the perception of having more money. If you think you have $20,000 in your investment, you think you have more money than if you have $5000 in your investment. And realistically, what you really have is 100 shared of Nvidia, and all the future profits that those 100 shares entitle you to.

      • Re: (Score:1)

        by stulew ( 9337151 )

        Very nice explanation; Thank You.

      • Re: (Score:2)

        by ceoyoyo ( 59147 )

        The stock price times number of shares isn't the value of the company, it's the valuation (or the market capitalization).

        For once "valuation" isn't just some business dude adding syllables because it sounds smarter. That $200 you pay for the stock values the company at $200 * a bazillion shares. That's not the value of the company, it's what *you're* valuing it at, by paying that price for the stock. You are buying one bazillionth of the company for $200.

        It's easy to calculate so it gets used as "Xcorp is w

        • Re: (Score:2)

          by RobinH ( 124750 )
          To the average investor with their 401k or mutual funds or whatever, the only number the investment firm gives them is last share price times number of shares, so they absolutely take the latest purchaser's valuation as the actual value of all the shares they own.

          • Re: (Score:2)

            by ceoyoyo ( 59147 )

            Yes, and that's almost always appropriate for such a situation. The last price someone paid for a share is the best estimate of what you could sell your shares for. Your average retirement or mutual fund holder doesn't have enough shares to meaningfully move the share price.

            • Re: (Score:2)

              by RobinH ( 124750 )
              Correct, but knowing that there's an AI bubble and knowing that a whole bunch of people are making life and purchasing decisions based on this inflated value of their investments, this is the root of the problem. When the bubble pops and everyone holds off on making that next big purchase, that's what causes companies to lay off employees and pause investment, which is what causes the vicious cycle of a recession. It would be nice if we could interrupt that mostly psychological cycle somehow.

              • Re: (Score:2)

                by ceoyoyo ( 59147 )

                Would it? Research and development isn't constant, uniform progression. It comes in spurts and applied funding probably should too. You could central plan everything but that doesn't work very well. Competition, as inefficient as it seems, does.

                Better financial education so your average investor doesn't put all their rocks in the same bucket with a few months timeline, and a decent social security net would probably be better.

        • Why don't you go to the next board meeting of a typical publicly traded company, offer to buy them out by giving them its liquidation value in cash, and see what happens.

          • Re: (Score:2)

            by ceoyoyo ( 59147 )

            People don't generally sell companies (in whole or in part) for what they're worth right now. They sell them for what they think they're going to be worth in the future.

            • By definition, what things sell for now is what they are worth now.

              • Re: (Score:2)

                by ceoyoyo ( 59147 )

                You can certainly find some internet economists that will tell you that. In which case you are just fine with the idea that the cryptocurrency I just minted on my PC is worth one googol dollars.

                • If you set up a market, and multiple people who actually had $1e100 put in a bid of that amount for your stupid crypto, then at least for that instant it was worth that much. It may not be worth that much later, but it would be NOW.

                  FFS, how can you have such a hard time understanding such a basic concept?

    • Re:Economists please break it down (Score:4, Insightful)

      by timeOday ( 582209 ) on Thursday October 09, 2025 @09:40AM (#65714220)
      Until the moment you use some product or service, its value is somewhat speculative - it's is how many goods/services you expect to get from it at some point in the future. That's true of dollars, stocks, investment real estate, a stockpile of baked beans and bullets, whatever.

      So let's say you buy a beanie baby for $5. Suddenly there's a craze and somebody somewhere pays $100 for the same type of beanie baby you have. Congratulations, your wealth just went up by $95. You start thinking about retiring early. But then the craze crashes, and another beanie baby like yours sells for only $2. Aw crud, $98 of dollars of your wealth was just destroyed! Except there are also 10,000 of the same one held by collectors. So $980,000 of wealth was destroyed! say the headlines.

    • "so where does "money" come from and where did it go?"
      I get the feeling that you conceive of money as a static pile of cash that gets shared out and moved around. That's not how money works at all. You may want to read up on how the money supply works. TLDR version: Money is being constantly created and destroyed as banks lend and fiscal assets change in value.

    • It came from the builders and the large financial institutions that lend them money? And it goes into building things that might end up being worth far less than they cost. That's where it gets lost, if the bubble crashes.

      Fortunately, it should have a limited impact if it bursts. Some big tech firms and financiers will take heavy losses, but it shouldn't be like the housing bubble.

      I wouldn't want to be invested in any company exposed to this risk.

  • A few things (Score:4, Informative)

    by rufey ( 683902 ) on Thursday October 09, 2025 @09:14AM (#65714174)

    A few things come to mind:

    If it quacks like a duck, walks like a duck, swims like a duck, it is a duck, even if everyone tells you its not a duck.

    Pay no attention to the man behind the curtain.

    The definition of insanity is doing the same thing over and over but expecting a different result.

    Gambling odds are always in favor of the house, not the gambler. Eventually the piper will need to be paid.

    The AI gold rush reminds me of the late 1990s where everyone and their dog could start a company that did nothing of value and yet walk away with hundreds of millions selling the "success is just around the corner, if only we could find someone to throw more money on the fire" to the next sucker, until the music stops and someone ends up holding a bag full of nothing but air.

    • Ducks don't "swim"!

    • Based on nothing more than my own intuition (and a high-school-level understanding of economics), I predict that the AI bubble will pop in 2026. Possibly as late as Q4.

      When it pops, it will not be utter collapse, because there is enough real value here that there will still be an AI product and market. But there will be a significant market correction, as the current levels of excessive optimism will ratchet down to something more realistic.

      So there will be some hardship, but it won't be the next Great De

      • Re: (Score:1)

        by 0123456 ( 636235 )

        There'll be a lot of GPUs to sell, but the big question is whether there'll be any service to sell for which they can charge more than it costs. Between the hardware investment, the cost of running the data centres and the cost of power for the GPUs required to run the LLM it's not clear to me that they can offer a service that people will pay for if they charge the full cost of operating it.

        • I stopped reading when I realized that meant GPU prices coming down around the time I'll be looking to upgrade. Can't take the chance that there was bad news after that.
      • care to share your homework?
      • It shouldn't even be as bad as 2007/8. Houses aren't made out of AI.

    • The definition of insanity is doing the same thing over and over but expecting a different result.

      I keep telling people this, and they keep saying I'm wrong, something about it not being an actual accepted or useful definition of insanity, just a meme that caught on at some point. Their refusal to see the truth is driving me f'ing crazy!

  • The big short (Score:3)

    by Gavino ( 560149 ) on Thursday October 09, 2025 @09:20AM (#65714186)
    I wonder if any big investment firms are shorting AI stocks? Maybe the Bank of England should put their money where their mouth is and do it. But their history with shorts isnâ(TM)t goodâ¦.i.e George Soros 1992.
    • Why is it that when people discuss "evil billionaires", the guy who made his money by gleefully crashing national economies is rarely mentioned, but people who build wildly successful businesses are? And why in God's name do we accept his political influence when it pushes policy in unsustainable directions and imperil the economies of every nation he touches? Have we learned nothing from what he has said he does?

      • Soros didn't crash the British economy. He merely shorted the pound in anticipation that its valuation at the time was unsustainable. It was the policies of the Tory government under John Majors at the time who caused the crash.

  • Stock market Bubbles Bursting (Score:5, Interesting)

    by gurps_npc ( 621217 ) on Thursday October 09, 2025 @09:44AM (#65714224) Homepage

    Here is a secret about Stock Market Bubbles.

    Everyone knows they are a bubble.

    The issue is that you do not know how big the bubble is going to get. They become HUGE sometimes. Look at Tesla. in December of 2024 everyone could see this high flying stock was going up super fast. But they did not know this was the top. So they kept it. If you sold some in February you likely came out ahead, even though it was half the year end price in March.

    Often you make more money by putting some money in the bubble and taking 10% out once a month, rather than avoiding it entirely.

    Many believe that the trick is to never have too much of your money in the bubble, rather than avoiding it entirely. They try to ride the bubble up and get out early enough to make money.

    If they pay attention and are skilled at it, they can make a lot of money.

    If they are on vacation the wrong week, they lose a ton.

  • An AI failure would certainly help the world right now.

  • Let's see, yesterday that wild-eyed leftist rag (Fortune) had a story that a Harvard economist said that GDP growth was 0.1% other than related to data centers.
    Today, there's a headline story that Dimon of BoA is afraid there's going to be a massive stock market crash in the next 6 months - two years.
    And the head of the UK Central bank is afraid that the AI bubble will crash.
    Finally, McKinsey, a major consulting firm, published a report saying "Software vendors keen to monetize AI should tread cautiously, s

Slashdot Top Deals

A good supervisor can step on your toes without messing up your shine.

Close