Key facts
- Bank of England Governor Andrew Bailey warned that AI could trigger financial market shocks.
- He cautioned that "not everybody always wins" in the race for AI profits.
- Bailey noted that AI chipmaker Nvidia has a market valuation of $5.5tn.
- Tech giants Alphabet, Meta, Microsoft, and Amazon are spending hundreds of billions on AI.
- Anthropic and OpenAI are preparing to sell shares, potentially adding hundreds of billions more to the sector.
- Bailey highlighted AI's potential to increase cyber-risk in speed, scale, and economics.
Bank of England Governor Andrew Bailey has warned that the rapid advancement and investment in artificial intelligence could trigger financial market shocks, urging authorities to be prepared and retain the ability to intervene in the sector. Bailey stated that the central bank is closely monitoring the substantial sums being invested in AI firms, cautioning that "not everybody always wins" in the pursuit of high returns.
He noted that the current market valuation of some AI companies, driven by hopes of future profits, has led to them being valued as multi-trillion dollar businesses. Bailey acknowledged the potential for a "correction of asset prices at some point" if these high expectations are not met. He highlighted that while AI has "great potential to strengthen growth," it also brings "substantial risks" that need to be managed.
Bailey pointed to Nvidia, the world's most valuable listed company with a $5.5tn valuation, as an example of investor belief in AI's profit potential. He also mentioned that tech giants like Alphabet, Meta, Microsoft, and Amazon are investing heavily in the technology, with Anthropic and OpenAI also preparing for share sales that could inject hundreds of billions more into the industry.
"Everybody is currently priced to be a winner," Bailey said, recalling past market leaders like Netscape that have since disappeared, underscoring that not all current AI players will succeed. He added that the Bank of England is prepared for market shocks and is working to ensure the financial system's resilience.
Beyond market valuations, Bailey also identified other risks, including the use of AI for cyber attacks, describing it as a "very powerful, potentially very powerful, weapon" in the wrong hands. He also raised concerns about deepfakes, noting the difficulty in tracing their origin. On a positive note, Bailey suggested AI could significantly speed up the work supporting the Monetary Policy Committee's interest rate decisions.