Nvidia became the first company in the world to pass a $4 trillion valuation in July 2025, having only reached $1 trillion two years earlier. The Bank of England warned in its October 2025 Financial Stability Report that UK share prices were at their most stretched levels since before the 2008 financial crisis, with US equity valuations echoing the dotcom bubble of the late 1990s, and flagged the risk of a “sharp market correction” if sentiment turned. The European Central Bank issued a similar warning about AI-driven tech valuations again in August 2026. Two different central banks, roughly a year apart, both landing on the same concern is worth paying attention to – not necessarily as a signal to sell, but as a reason to understand what’s actually driving the rush.
Fear of missing out
Watching AI-related stocks climb while headlines celebrate the latest milestone creates real pressure to buy in, even without a clear view of whether the investment case stacks up. FOMO-driven decisions are rarely made on the strength of the underlying business – they’re made on the strength of what everyone else appears to be doing, and by the time a trend is visible enough to trigger FOMO, a meaningful part of the opportunity has often already been priced in.
Confirmation bias
Once you’ve decided AI stocks are a good bet, it becomes remarkably easy to notice every bullish headline and quietly skip past every warning – including central bank ones. Confirmation bias doesn’t feel like bias from the inside; it feels like being right. The BoE and ECB warnings above are exactly the kind of information this bias makes easy to dismiss.
Recency bias
Strong recent returns tend to get extrapolated forward, as though the last two years are a more reliable guide to the next two than decades of market history. Recency bias is a large part of why investment bubbles form in the first place – performance that’s been strong lately feels less risky than it actually is, right up until the moment it doesn’t.
Narrative bias
AI is a genuinely compelling story – transformative technology, obvious real-world applications, household-name companies at the centre of it – and compelling stories are exactly what narrative bias latches onto. A good story can make an investment feel like common sense even where the valuation attached to it has drifted well ahead of what the underlying business could realistically deliver.
What this is actually a reason to do
Recognising these biases isn’t a reason to avoid AI-related investments altogether, and AI isn’t automatically a bad investment theme because a bubble has been mentioned. It’s a reason to check that any exposure you hold fits your actual risk tolerance and time horizon, rather than having grown simply because it’s been the story everyone’s been telling. A properly diversified portfolio can hold AI-related exposure without being overly concentrated in it, which tends to matter more than trying to guess whether or when a correction actually arrives.
Let’s check your own exposure
We work with clients across Poole, Bournemouth and the wider Dorset area to build portfolios around genuine goals and diversification, rather than the latest market narrative. If you’d like a second opinion on your own investments, get in touch and we’re happy to have a no-obligation conversation.
This article is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only. All information is correct at the time of writing (September 2026) and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount invested. Past performance is not a reliable indicator of future performance.