Could practical constraints like strained power grids and data shortages be the pin that pops the artificial intelligence bubble? The Bank of England’s Financial Policy Committee (FPC) sees this as a credible risk, warning that “material bottlenecks” could harm valuations and trigger a “sharp market correction.”
The FPC’s report suggests that the market’s “stretched” valuations for AI firms like OpenAI ($500 billion) are based on the assumption that the physical infrastructure to support exponential growth will be readily available. The committee questions this assumption, pointing to “power, data or commodity supply chains” as potential weak points.
Any significant disruption or shortage in these areas could force a “re-evaluation” of the high future earnings currently expected from AI. This would undermine the rationale for the massive stock prices and could lead to a sudden sell-off.
This infrastructure risk exists on top of the already significant gap between hype and profitability, where an MIT study found 95% of firms are seeing no return on their AI spend. Furthermore, the global financial system is also being stressed by political attacks on the US Federal Reserve’s independence.
The FPC concluded that this complex web of risks poses a “material” threat to the UK. As a globally connected economy, Britain is highly exposed to “spillovers” from a tech correction, a supply chain crisis, or a US political shock.