FINANCIAL experts have said the four most dangerous words in investing are “this time it’s different” following the Bank of England warning of a possible “sharp correction” in the value of AI companies — and the global economy’s exposure to a multi-trillion dollar AI debt mountain.
In its Financial Stability Report, published yesterday, the central bank said: “Markets do not appear to be fully reflecting the persistent material uncertainty in the global economic and policy environment, and the potential for adverse outcomes. Some risks are difficult to price, either because they are very unlikely to occur or their impacts are highly unpredictable. The risk of a sharp correction remains high.
“If participants were to reassess their outlook abruptly this could cause asset prices to realign to the prevailing high level of uncertainty.
“The risk of a sharp correction sits against a backdrop of rising public debt-to-GDP ratios in many advanced economies, potentially constraining their governments’ capacity to respond to future shocks.
“Notably, equity market valuations for technology companies focused on artificial intelligence (AI) remain materially stretched. On some measures, equity valuations are close to levels not seen since the dot-com bubble in the US, and the global financial crisis in the UK.”
Four most dangerous words of investing
Referencing the relation of the Dotcom crash at the turn of the century to the current AI investment train, Colin Low, Managing Director at Ipswich-based Kingsfleet, said: “The four most dangerous words in investing are ‘this time it’s different’.”
He continued: “For the past few years, investment experts have highlighted the extended valuations of mega-cap US tech businesses and yet, month after month, their capitalisation has increased, without any sense of rationality.”
It’s a view shared by Antonia Medlicott, Founder & MD at London-based Investing Insiders, who advised against being overweight AI and to have a diversified portfolio.
She said: “It would be foolish to think this time is different to the Dotcom collapse, when history tells we are most likely on course for a correction. It’s tempting to think otherwise when you’re riding a high of huge price growth and spectacular returns, though.
“There will be people trying to time their trades, seeking to sell at the top, and buy again at the bottom, to benefit from any potential bounce back. But it’s important to note perfect timing is rare and those who achieve it are often just lucky.
“Investors should be less concerned with “timing” this market, and more focused on gaining “time in the market”. Staying invested for the long-term allows you time to benefit from a recovery, which history suggests will always follow with enough time.
“A diversified portfolio, not solely reliant on AI and not concentrated too heavily on US stocks, should also help to smooth out the effects of any market shock in one particular sector or geographic region.”
Profits: the key difference
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, also urged caution but did differentiated between the companies today, which make money and those of 2001, which in countless instances did not.
He said: “‘It’s different this time’ is a dangerous adage but drawing too many parallels with the Dotcom crash may also be dangerous.
“At that time, some companies were being valued by how many webpage visits they had and they weren’t profitable. Now while that’s true now of some AI companies, the likes of Nvidia, Meta and Alphabet are incredibly profitable and so may be better placed to sustain these risks.
“That being said, valuations do look stretched and these valuations are relying heavily on AI being the next best thing since sliced bread. It won’t take a lot to cause a wobble and then we’ll see how robust this technology is.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, agreed that the comparison between investing in 2001 and 2025 isn’t entirely accurate.
He said: “Yes, there are uncomfortable parallels with the Dotcom bubble, but let’s not forget that one key difference stands out: AI companies already generate substantial revenue, whereas many Dotcom companies had zero revenue and were valued purely on eyeballs and traffic.
“The real concern for me isn’t economy-wide productivity gains, but rather the wealth concentration in a few US giants, which is the ultimate K-shaped economy.”
Larger structural problem
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said that “the Bank of England’s warning about an AI-driven “sharp correction” sits on top of a far larger structural problem: we are not just speculating on a new technology, we are layering a vast, debt-financed bet on AI onto a monetary and fiscal system that is already at breaking point”.
She continued: “Globally, the major central banks – led by the Federal Reserve – are effectively in a regime of fiscal dominance. Western social entitlement systems have taken on the character of a Ponzi structure: more is being taken out than paid in, and the mathematics no longer work without constant financial repression.
“And now into this mix comes AI. The headline number – around $5 trillion of infrastructure spending, a large share of it funded by external debt – is being sold as a productivity revolution. Yet the macro frame is awkward.
“AI is extraordinarily capital-intensive, demands huge upgrades to power grids and data infrastructure, and arrives at a moment when debt-to-GDP ratios are already at, or above, post-war extremes.”
FOMO a key driver
Rohit Parmar-Mistry, Founder and AI expert at Burton-on-Trent-based Pattrn Data, said we are building solutions for problems that don’t exist and that FOMO is a key driver of this.
He said: “$5tn on infrastructure is the world’s most expensive case of corporate FOMO. The Bank of England has finally said the quiet part out loud: we aren’t building a productivity revolution; we are building a massive data centre for solutions nobody asked for.
“The Governor’s parallel to the Dotcom bubble is spot on, but the reality is more insidious. We are funding a global gambling addiction with debt the real economy cannot afford, all concentrated in a handful of US giants.
“I see this daily on the ground: businesses drowning in ‘black box’ tools that create work rather than reducing it. They are betting on generative fantasy rather than practical utility. This $5tn spend isn’t innovation, it is a casino selling solutions to problems that do not exist.
“If this bubble bursts and the “stretched” valuations suggest it will, it might finally flush out the hype merchants. We need to stop treating AI like a lottery ticket and return to boring, practical automation that actually helps humans.”
“We have seen this movie before”
Another of the UK’s leading AI experts, Colette Mason, Author & AI Consultant at UK-based AI consultancy, Clever Clogs AI, agreed.
She said: “We have seen this movie before. Throwing trillions at a mostly unproven ‘black box’ tech churning out slop doesn’t create value, solving human problems reliably does.
When half of that infrastructure spending is funded by external debt, we aren’t just looking at a tech correction, we are looking at a financial stability risk that could hit the UK and wider global economy hard.”
Photo by Zdeněk Macháček on Unsplash
