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Bailey sends cautionary message on AI investment

Andrew Bailey, governor of the Bank of England (the UK’s central bank), said the strong flow of capital into artificial intelligence could eventually trigger turmoil in financial markets. Bailey said the investment and lending volumes directed at AI companies in recent years have pushed some firms to very high valuations, raising the risk of an eventual correction in asset prices.

According to Bailey, the technology has the potential to support economic growth, but that potential is accompanied by significant fragilities. The central bank believes that the expectations built around AI investments will not produce the same outcome for every company.

The scale of market optimism is also reflected in the numbers. Nvidia's market value has reached $5.5 trillion, while Alphabet, Meta, Microsoft and Amazon are said to be allocating hundreds of billions of dollars to the technology. The fact that Anthropic and OpenAI are also preparing share sales in the US stock market has strengthened expectations that even more money could flow into the sector.

High valuations are being watched alongside bond markets

Bailey pointed out that current pricing already makes many companies look like winners, while noting that history has not always worked out that way. Citing the early days of the internet economy as an example, Bailey stressed that not every name standing out in markets today will be a leader tomorrow. For that reason, the possibility that a loss in value could turn into a sharp price correction remains on the radar.

The warning came at a time when public borrowing costs are also rising. The yield on 30-year UK government bonds rose above 6% on Thursday, reaching its highest level since 1998. In the US, the 10-year Treasury yield climbed to 5.34%, its highest level since 2002, signaling selling pressure in the bond market.

Analysts say there was no single trigger behind the move that day, but note that the higher-rate environment is changing investor preferences. As interest rates rise, investors are turning away from government bonds and toward areas they believe offer greater return potential, especially the AI theme, which is being fueled by software and data center spending.

Cyber risks are emerging alongside the opportunities

Main points highlighted by the central bank

  • AI-powered tools can be used more effectively for cyberattacks
  • Deepfake content that looks highly realistic can mislead the public
  • Operational gains could help improve efficiency in monetary policy work

Bailey said artificial intelligence could speed up the work that informs the Monetary Policy Committee’s interest-rate decisions, but would not take on a decision-making role. On the other hand, if the technology is misused, it can become harder to detect security gaps and trace the source of fake content. Bailey was also said to have experienced this risk personally in June, when fabricated images made it appear as though he was involved in a fight with Nigel Farage.

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