Bank of England warns of 'sharp market correction' if AI bubble bursts (www.cnbc.com)

The Bank of England warned in its latest meeting minutes that the risk of a "sharp market correction" has increased, calling out especially stretched valuations among AI-focused tech firms. It highlighted that equity markets are near all‑time highs and that the top five S&P 500 companies now account for almost 30% of the index — a 50‑year peak — leaving markets vulnerable if enthusiasm about AI’s economic impact cools. The BoE joins other policymakers, including Fed Chair Jerome Powell, in flagging richly priced assets and urging investor caution as earnings season and geopolitical uncertainty unfold. The minutes detail concrete downside scenarios that could trigger re‑rating: slower-than-expected AI capability or adoption, rising competition, or material bottlenecks in power, data or key commodity supply chains; even conceptual shifts that change anticipated AI infrastructure needs could undermine valuations tied to future AI investment. The note also flags wider systemic strains — private credit stress, sovereign debt pressures and political instability — that could amplify contagion and feed through to households and businesses already squeezed by high living and borrowing costs. The practical takeaway for the AI/ML community and investors is that high forward earnings assumptions are fragile; diversification and caution remain prudent until fundamentals and infrastructure risks are clearer.