Stock valuations based on past earnings also reached their highest levels since the dot-com bubble 25 years ago, although the Bank of England noted they appeared less extreme if based on investor expectations for future earnings. “This, coupled with the growing concentration of market indices, makes equity markets particularly vulnerable if expectations about the impact of AI become less optimistic,” the central bank said.
Labor and troubles?
The dot-com bubble offers a potentially instructive parallel to our current era. In the late 1990s, investors poured money into Internet companies with promises of transforming the economy, seemingly ignoring whether individual businesses had a realistic path to profitability. From 1995 to March 2000, the Nasdaq rose 600 percent. When sentiment changed, the correction was severe: Nasdaq fell by 78 percent from its peak, reaching its lowest point in October 2002.
Whether we'll see the same thing or even worse if the AI bubble bursts is just speculation at this point. But, as in the early 2000s, the question about today's market isn't necessarily the usefulness of the AI tools themselves (the Internet was useful, despite the bubble, after all), but whether the amount of money being poured into the companies that sell them is disproportionate to the potential profits those improvements could bring.
We don't have a crystal ball to determine when such a bubble might burst, or even whether it's guaranteed to happen, but we'll likely continue to see more warning signs ahead if AI-related deals continue to grow It gets bigger and bigger over time.
