BoE flags AI stocks as potentially overvalued amid market rally

The Bank of England and other officials have warned that equity markets may be overvaluing artificial intelligence-related stocks, raising the risk of a sharp correction even as U.S. indexes reached fresh highs this week and investors debate whether AI-driven growth is sustainable. The Financial Policy Committee flagged stretched valuations and rising concentration in benchmark indices, while markets yesterday pushed the S&P 500 to a record close and the Nasdaq higher, driven largely by large technology names tied to AI investment.

Officials cited heavy spending on data centers, chip capacity and software alongside political and supply risks as factors that could expose markets if expectations for AI prove overly optimistic. The concern is that concentrated gains among a handful of companies could amplify losses and transmit shock across global markets, hitting household wealth, pensions and corporate credit if a broader selloff follows.

Other economists and strategists offer a different reading. Several analysts argue that corporate demand for AI tools and infrastructure is real and expanding, and that much of the current capex is being financed from operating cash flow rather...