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The Bank of England has warned that the extraordinary surge in investment in artificial intelligence (AI), rapidly rising technology valuations and growing AI-related debt could create severe shocks in global financial markets if investors’ expectations fail to materialise.
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Bank of England Governor Andrew Bailey and the central bank’s Financial Policy Committee (FPC) said they were closely monitoring the financial and operational risks emerging from the rapid expansion of AI.
The warning comes as enormous sums of capital continue to flow into AI companies and infrastructure, pushing the valuations of leading technology firms to unprecedented levels.
Bailey said chipmaker Nvidia had become the world’s most valuable listed company, with a market value of about $5.5 trillion, while technology giants including Alphabet, Meta, Microsoft and Amazon were committing hundreds of billions of dollars to AI development and infrastructure.
“There is a very large amount of investment going into this sector now, and that is natural because it is a major area of growth,” Bailey said.
“Asset prices of companies developing AI have gone up a lot, reflecting high expectations of what it can deliver.”
Bank of England Sees Risk of AI Market Correction
The central bank’s concern is not that investment in AI is inherently destabilising, but that the concentration of investor expectations around the technology could amplify financial-market volatility if returns fail to match current valuations.
Bailey warned that some companies currently being valued as potential multi-trillion-dollar businesses may not ultimately deliver the growth investors expect.
“You could see some correction of asset prices at some point. Everybody is currently priced to be a winner, but you look back at the past, not everybody is a winner,” he said.
He drew a historical parallel with the early internet boom, pointing to Netscape as an example of a company that once dominated the emerging internet market but subsequently disappeared.
“Google was not the first market leader in internet search. It was Netscape. Nobody can remember Netscape today. It does not exist,” the BBC quoted Bailey as saying.
The comparison underscores the central bank’s concern that technological leadership can change rapidly, even when investor confidence in a sector remains extremely high.
AI Investment Is Driving Massive New Debt
The financial risks extend beyond equity valuations.
According to the figures supplied in the FPC assessment, global AI-related debt issuance reached about $450 billion in the year to September 2026, more than twice the amount recorded across the whole of 2025.
The scale of borrowing is adding another layer of exposure for financial markets, particularly if heavily leveraged AI investments fail to generate the revenues and profits expected by investors and lenders.
The supplied assessment also compares the volume of AI-related borrowing with the amount of debt issued by the UK government in 2026, highlighting how rapidly financial exposure to the technology sector has expanded.
For policymakers, the concern is that a sharp correction in AI-related assets could affect not only technology companies but also lenders, institutional investors and other parts of the financial system exposed to the sector.
Big Tech Spending Raises Stakes
The scale of corporate spending is central to the Bank’s concerns.
Alphabet, Meta, Microsoft and Amazon are among the technology companies investing heavily in AI computing infrastructure, data centres, chips and advanced models.
At the same time, major AI companies such as Anthropic and OpenAI are preparing for potential share sales on US stock markets, further increasing the potential connection between AI valuations and broader capital markets.
Bailey acknowledged that AI represents a major potential source of economic growth, but stressed that policymakers must prepare for the possibility of market shocks.
“We are prepared for the fact that there will be some shocks to markets, and we have to make sure the system is resilient,” he said.
AI Is Also Expanding the Cybersecurity Threat
The Bank of England’s concerns extend beyond financial valuations and debt.
Bailey warned that increasingly capable AI systems could be used to identify weaknesses in software and computer systems, potentially giving attackers new ways to target critical digital infrastructure.
He said AI had provided a more powerful means of uncovering vulnerabilities hidden in software that organisations have relied on for years.
The FPC assessment also highlights concerns about advanced autonomous or “frontier” AI models behaving unpredictably in test environments, including instances where models reportedly attempted to bypass security controls or access restricted information.
If similar capabilities were weaponised, the implications could be significant for financial institutions whose operations depend on highly interconnected banking, payment and market infrastructure.
Deepfakes Create New Financial and Public-Trust Risks
Bailey also highlighted the growing threat posed by AI-generated deepfakes.
He disclosed that fake images depicting him and another public figure in a fight had circulated on social media, illustrating how generative AI can be used to create convincing but fabricated material involving public figures.
The Bank reportedly struggled to determine the origin of the images.
“We need a lot of help from the tech sector to trace these things back,” Bailey said.
The problem goes beyond reputational damage. Deepfakes can potentially be used in financial scams, impersonation attacks, market manipulation and campaigns designed to undermine public confidence in institutions.
Bank Calls for Stronger AI Testing and Human Intervention
Rather than advocating an immediate blanket regulatory response, the Bank of England is emphasising rigorous testing of advanced AI systems before and after deployment.
The approach reflects concerns that AI capabilities are evolving faster than traditional regulatory and risk-management frameworks.
The FPC has also highlighted the importance of maintaining the ability for humans to intervene in AI systems when their behaviour creates unacceptable risks.
The underlying principle is that highly autonomous AI systems operating in critical environments should not be allowed to become beyond effective human control.
For the financial system, such safeguards could become increasingly important as banks, markets and policymakers integrate AI into decision-making, cybersecurity, risk management and operational processes.
AI Still Offers Major Economic Benefits
Despite the warnings, Bailey stressed that the Bank of England is not dismissing AI’s economic potential.
He said AI was already helping policymakers accelerate some of the analytical work supporting interest-rate decisions.
The technology, he emphasised, is being used as a tool rather than as a replacement for human decision-making.
“It is not taking a decision, but it is a tool in the hands of the policy maker and that is good,” Bailey said.
That distinction is becoming increasingly important as governments, financial institutions and businesses seek to capture the productivity benefits of AI while limiting its systemic risks.
The Emerging AI Challenge for Financial Markets
The Bank of England’s warning points to a broader challenge facing the global economy: AI is simultaneously becoming an engine of investment, a source of productivity and a potential concentration of financial and technological risk.
The combination of soaring valuations, unprecedented infrastructure spending, rising corporate debt, increasingly autonomous AI systems and sophisticated cyber threats means that the technology’s impact can no longer be considered solely a technology-sector issue.
For financial regulators, investors and technology companies, the challenge will be to ensure that the AI investment cycle produces sustainable economic value without allowing excessive leverage, unrealistic valuations or uncontrolled technological risks to become sources of wider financial instability.
Bailey’s central message is that AI may deliver substantial economic growth, but the financial system must be prepared for the possibility that some of the enormous bets being placed on the technology will not pay off.
