ECB: AI boom, risk of a new dot-com bubble
A warning has come from Frankfurt: if share prices were to plummet, the eurozone would not emerge unscathed: households are exposed to US tech firms to the tune of 440 billion
What if AI were a bubble? This is the question (or doubt) raised in a post published on the European Central Bank’s blog. The analysis raises topical issues and suggests that a correction in current share valuations is likely, with the euro area unlikely to emerge unscathed. The article is authored by five economists from the Frankfurt-based institution: Malin Andersson, Johannes Breckenfelder, Stefano Corradin, Kalin Nikolov and Maria Antonietta Viola.
The context is well known. In the US market, indicators are currently close to their all-time highs. Valuations in the eurozone have also risen, albeit to a lesser extent. And on both sides of the Atlantic, prices reflect investors’ enthusiasm for artificial intelligence as a force capable of reshaping the economy and driving profits. The question the authors ask is whether this is a rational bet on a transformative technology or a repeat of the dot-com bubble. Their answer is that economic research into past technological revolutions points to a worrying conclusion: a correction is likely.
Among the historical precedents, the authors cite the nineteenth-century railway boom, the spread of electricity and radio in the 1920s, and the internet boom of the 1990s. In each case, a truly transformative technology attracted investment, and the valuations of the companies that adopted it rose sharply before crashing.
In short, booms have usually been followed by corrections. The authors, however, make two caveats. The first is that today’s prices are not necessarily a ceiling: if artificial intelligence proves to be transformative enough, future valuations could turn out to be much higher even after a correction. The second concerns the timing of such a correction, which is impossible to predict in advance. Cycles of boom and bust, they write, can only be recognised with the benefit of hindsight.
The most significant aspect for Europe concerns exposure. The dominance of the ‘Magnificent 7’ (Alphabet, Amazon, Apple, Tesla, Meta, Microsoft and Nvidia) in the most widely used global indices, starting with the MSCI World, poses significant risks for investors in the eurozone. Most of this exposure does not come from direct holdings, but from mutual funds and ETFs. By cross-referencing data on fund subscribers, the authors estimate that households in the euro area have around €440 billion of exposure to US technology shares, often without being aware of the resulting concentration risk. Insurance companies and pension funds also hold significant positions. The figures refer to the five largest holders in the euro area, based on market values as at the third quarter of 2025.
