FSB chief warns AI valuations may be in bubble territory

The head of the global financial watchdog has warned that the feverish pace of investment in artificial intelligence may have created a bubble, adding his voice to a growing chorus of regulators raising alarm over stretched valuations and concentrated market risk.

John Schindler, secretary-general of the Financial Stability Board, drew comparisons between today's AI-driven market rally and both the dotcom era and the period preceding the 2008 financial crisis during a keynote speech at the Atlantic Council on Monday. Schindler highlighted concentration risk in the US equity market, where a handful of AI-related companies now account for a disproportionate share of total market capitalization, and flagged the largely unregulated nonbank financial sector — including hedge funds — as a potential amplifier of any correction.politico+2

Concentration and Contagion

The FSB's concerns center on the degree to which global markets have become dependent on a narrow band of AI-linked firms. Schindler warned that record-high valuations could prove unsustainable if commercial revenues fail to match the scale of capital being deployed. The nonbank sector, which operates with less regulatory oversight and often with significant leverage, could transmit shocks across the broader financial system if AI valuations were to unwind sharply.resultsense+2

The warning follows the FSB's broader work on nonbank financial intermediation and AI-related vulnerabilities, including a June plenary session where members flagged risks from a combination of shocks triggering multiple vulnerabilities simultaneously.fsb

Singapore's Central Bank Echoes Concerns

Hours before Schindler's speech, Chia Der Jiun, managing director of the Monetary Authority of Singapore, identified the sustainability of the AI investment boom as a central uncertainty for global financial stability. Speaking at the release of MAS' annual report on Tuesday, Chia noted that while near-term AI investments are supported by committed orders and strong hyperscaler cash flows, "there is greater uncertainty around the sustainability of these investments in the medium term".businesstimes

Chia warned that a pullback in AI spending could "rapidly weaken global growth through a fall in business investments and semiconductor demand" and trigger a swift tightening of financial conditions. "Given the high growth that we've experienced, it can be quite a sharp turn, and that can be quite damaging to growth and damaging to financial markets," he said.businesstimes

Regulatory Landscape

The twin warnings from the FSB and MAS mark a shift from general caution to more pointed concern among financial regulators. The FSB has been building its AI surveillance framework since at least 2024, when it began monitoring AI adoption and related vulnerabilities in the financial sector. It issued proposed sound practices for responsible AI adoption in finance in June and held a virtual consultation event in early July. Whether these warnings translate into coordinated regulatory action remains to be seen, but the parallel messaging from Basel and Singapore suggests the issue is now firmly at the top of the global financial stability agenda.fsb+1