European Central Bank economists warned in a Monday blog post that history points to a likely correction in stock market valuations driven by the AI boom, even as U.S. and European stocks scale record highs.
"Economic research on past technological revolutions points to a worrisome conclusion: a correction of current stock market valuations is likely," the economists wrote, citing two potential scenarios that could trigger a downturn.
In one scenario, a correction could occur because "overoptimistic investors" push prices beyond fundamental worth, leading to a crash once that exuberance fades. In the other, even if current valuations accurately reflect AI's capacity to reshape the global economy and boost corporate profits, a fall in prices should still be expected, according to the economists.
The ECB economists drew parallels with the 19th century railway boom, the expansion of electricity and radio in the 1920s, and the rise of the internet in the 1990s, noting these are not the first comparisons made between the current AI wave and the dotcom bubble of the early 2000s.
