Opinions differ. The Bank of England has said AI-focused tech valuations look stretched and the risk of a sharp correction persists. Fed chair Jerome Powell argued in 2025 that today's leaders, unlike many dot com firms, have real earnings and business models.

AI bubble

In short

An AI bubble is the idea that prices of AI-related shares, and the spending behind them, have risen far beyond what the technology will realistically earn, so a sharp fall could follow. Whether one exists is disputed.

Also called: AI stock bubble, AI investment bubble
Topic: The AI business
Level: Beginner

A bubble is when asset prices run well ahead of the profits that are supposed to justify them, then fall hard when expectations change. The AI version of the argument centres on chipmakers, cloud companies and AI labs.

The warning case. In October 2025 the Bank of England's Financial Policy Committee said equity valuations looked stretched, particularly for technology companies focused on AI. It noted that one US valuation measure was close to its lowest level in 25 years, comparable to the dot com peak¹. It listed disappointing AI adoption, more competition, power bottlenecks or a breakthrough that needs less infrastructure as things that could hit prices¹.

The other side. Federal Reserve chair Jerome Powell said in October 2025 that the situation differed from the dot com era because the most highly valued companies "actually have earnings" and business models, whereas in the 1990s many were "ideas rather than companies"². The Bank of England also noted upside risks as well as downside ones¹.

What has happened since. The Bank of England reported that AI company valuations fell sharply in July 2026, worsened by leveraged investors unwinding positions, but with no spillover to core markets³. It said the risk of a sharper correction persists, and flagged fast-growing AI debt and "circular arrangements" in financing³. One example of such an arrangement is Nvidia guaranteeing up to $105 billion of data-centre lease payments for OpenAI, a customer for its chips⁴.

No one can know in advance whether a boom is a bubble. Kenning reports both sides and the evidence, not a verdict.

Example

A UK pension saver in a global index tracker owns a large slice of US tech giants. The Bank of England has warned that index concentration means any AI-led price fall would pass through heavily to investors in the whole index¹.

Why it matters

If AI expectations reset, the effects would reach ordinary savers, pension funds and possibly government finances, not just tech investors. The Bank of England says growth and fiscal outlooks partly depend on AI delivering productivity gains³.

Questions people ask

Is AI a bubble?

Opinions differ. The Bank of England has said AI-focused tech valuations look stretched and the risk of a sharp correction persists¹³. Fed chair Jerome Powell argued in 2025 that today's leaders, unlike many dot com firms, have real earnings and business models².

How is the AI boom different from the dot com bubble?

The biggest AI spenders are already very profitable companies, a point Jerome Powell made in 2025². The Bank of England has noted that some valuation measures are nonetheless near dot com levels, and that more of the build-out is now funded with debt¹³.

What would an AI bubble bursting mean for the UK?

The Bank of England judged in 2025 that spillover risks to the UK from a global market correction were material¹. After AI stocks fell in July 2026, it said there had been no spillover to core markets and that UK banks remained well capitalised³.

Related terms

Sources

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