UK pension funds are reducing their exposure to US equities amid growing concerns of an AI-driven bubble. This shift reflects worries that valuations in the US technology sector, particularly those related to artificial intelligence, may be unsustainably high. Some analysts are drawing parallels to the dot-com era, cautioning that a sharp correction in tech stocks could negatively impact pension funds heavily invested in that sector.
The IMF's Global Financial Stability Report has also highlighted the concentration of tech stocks in US markets as a potential systemic vulnerability. While some experts believe it's premature to call an end to the AI boom, there's a consensus that diversification is crucial. The Bank of England has also expressed concerns that AI-driven tech valuations appear stretched.
Despite these concerns, some analysts point out key differences between the current tech rally and previous bubbles, noting that today's leading technology companies have demonstrated significant earnings growth. However, they also caution that investor behaviour shows signs of exuberance, with substantial capital being poured into AI-related ventures.
