ECB warns AI stock correction could spill into Europe

The European Central Bank is warning that the AI investment surge could give way to a significant market correction, with consequences that extend beyond Wall Street. Economists at the bank said US stock valuations are close to historical peaks as investors and companies bet heavily on generative AI, data centers and productivity gains.

The risk is not confined to US investors. EU households hold exposure to US technology equities worth around €440 billion, while insurance companies and pension funds also have stakes in Big Tech. The bank said many citizens may not recognize how closely their savings and retirement assets are tied to the same companies driving the AI rally.

The ECB compared the AI cycle with earlier technology booms, including railways in the 19th century, electricity and radio in the 1920s, and the dot-com era. Even if AI proves transformative, officials expect a boom-and-bust pattern could emerge, and close links between US and European markets mean a Wall Street correction would likely pressure Europe and could damage the broader non-financial economy.