ECB warns of 'bubble' in AI stocks as funds deplete cash buffers

Published On Nov 20, 2024, 4:09 AM

The European Central Bank (ECB) has issued a warning about a potential 'bubble' in artificial intelligence (AI) stocks, particularly affecting a few large companies at the forefront of the AI market. The ECB's concerns arise from a growing concentration in AI-related stocks, which has fostered high expectations from investors that may not be met. The report indicates that low cash reserves in investment funds and increasing dependency on AI firms pose risks of forced asset sales and further could lead to a global market downturn if earnings expectations fail. Additionally, the ECB highlighted the euro area’s vulnerability to external economic pressures, such as increased trade fragmentation and higher borrowing costs for some governments.