Some banks point to AI bubble risk, others deny it

Banking institutions, including the International Monetary Fund (IMF) and the Bank of England (BOE), have recently warned that global stock markets could face turbulence if the AI hype weakens.

Meanwhile, though JPMorgan CEO Jamie Dimon believes in the tech, he warned that investors could lose money as AI-driven markets could crash and cause economic disruption.

The BOE noted this week that the risk of a “sharp market correction,” wherein stocks drop over 10% but less than 20%, is increasing, especially for AI tech firms. Factors contributing to this risk include disappointing progress or rising competition.

Similarly, IMF Chief Kristalina Georgieva advised investors on Wednesday to “buckle up,” as “uncertainty is the new normal and it is here to stay.”

She added that while the global economy is projected to slow “only slightly,” there are “worrying signs” such as record-high gold prices and soaring stock values of AI companies.

Experts warn that the massive AI investments, often involving major tech companies financing each other, could create a potential “bubble,” where prices are higher than what the firms are really worth.

However, banks like Goldman Sachs, Morgan Stanley, and Bank of America argue that calling it a “bubble” is too extreme. They point out that most of the Big Tech companies are profitable and fund AI initiatives with their own cash rather than debt.