The Bank of Spain has warned that the heat around artificial intelligence (AI) has caused big technology companies to be overvalued in the stock market and could lead to a sudden fall in the market. inside you Fall 2025 Financial Stability ReportThe supervisor emphasizes that despite appearances of calm, there is a risk of “sudden and significant corrections in financial market valuations.”
“The market’s risk assessment is in contrast to the situation of uncertainty that we are seeing. The market is putting a low price on risk. If you look primarily at the situation in the US stock market, there is a market segment with very high valuations in technology companies, and that represents an element of risk and uncertainty,” explained Financial Stability Director Daniel Pérez Cid during the presentation of the report to the press.
The group believes that the euphoria that AI has unleashed on the market is one of the main reasons why the current stock market is concentrated in what is known as the Grand Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. “Equity markets have been marked by high valuations, particularly in relation to the rise of the technology sector with increasing market capitalization concentration in the US,” the report said. According to the Bank of Spain, this concentration “increases the likelihood of increased risks and creates additional risks.” impact Idiosyncratic influences related to your business have an overall impact. ”
This warning is in addition to warnings already issued by other international organizations in recent weeks. The International Monetary Fund (IMF) has warned that U.S. stocks are trading at 10% above their appropriate levels. Bank of England Governor Andrew Bailey said last week that AI was likely to be the next big technology to drive the economy, but also noted that “markets are pricing in future profit streams, which are uncertain, so bubbles could emerge.” The Bank of England itself has already launched an investigation into the exposure of UK financial institutions to loans intended to finance data centres, due to the possible impact of a sudden fall in the market, and the majority of fund managers are also concerned about the possibility of a bubble, which is the subject of eternal debate in financial circles.
among them Financial stability reportthe Bank of Spain has warned that market optimism is underpinned by excessive profit expectations. “These companies offer particularly high valuations based on significant earnings growth expectations, which will be unmet if the risks associated with technological advances such as artificial intelligence and the level of competition materialize,” he concludes. The Bank of Spain recalls that this assessment has been maintained in an environment of low market volatility but high uncertainty regarding global economic policies and prospects. Combinations that can amplify the impact of a modification. If such an event were to occur, “the adjustment could extend to various market segments, including sovereign debt, corporate debt, and equities.”
In any case, Perez Cid assessed that Spain’s financial system is ready to face the strain. He elaborated that “the resilience capacity of the sector will be demonstrated in a resilience exercise, a series of analyzes and market adjustment assumptions.” The report highlights the strong position of families and businesses, with debt levels low compared to historical averages. And the banking sector strengthened its capital buffers last year. “The capital levels of the Spanish banking sector provide remarkable overall resilience in the face of a variety of adverse scenarios,” the document said.
Eliminate the possibility of a real estate bubble
One of the most notable sections of the report is that on risks in the real estate sector. Although the Bank of Spain has highlighted the rise in house prices, reflecting that the indicators are at levels similar to 2001 (the years before the financial crisis), the supervisor has ruled out the possibility of a bubble.
“When we talk about a bubble, it is because of a very uncontrollable growth in demand, high debt and the position of families is not very solid. The data shows that we are not in a moment that can be characterized as such. There is an increase in prices due to supply not meeting all of the demand. But we have not observed the imbalances that existed at the beginning of the crisis in 2007,” Perez Cid explained.
He stressed that although house prices have increased in some provinces, there has been no overall increase in Spain as a whole. Additionally, household financial conditions are low, with low debt levels, and banks’ credit standards remain stringent, reducing the vulnerability of the real estate sector. The loan-to-value ratio for homes is around 68%, which is clearly a sensible level when compared to historic highs prior to 2007. Factors that dispel concerns about the housing crisis.
Mr. Pérez Cid also recalled that the Bank of Spain is developing a theoretical framework for assessing possible restrictions on the granting of mortgage loans. At present, this framework is only at the design and analysis stage and does not imply the implementation of specific measures. Its purpose is to provide supervisors with a tool in case of potential market tensions.
Apart from the risk of overvaluation of the stock market by technology companies, the Bank of Spain’s report also highlights other risks, such as the high level of budget deficits in Spain, especially in France and the United States. It also includes the political environment and uncertainty, as well as banks’ exposure to crypto assets. “Although these assets still represent a small portion of the financial market, further expansion and increased interconnectivity with the traditional financial sector is expected,” he concludes.
In any case, the Bank of Spain emphasizes that the Spanish financial system has strengthened its capital levels and has a high resilience that allows it to absorb sudden market corrections without compromising the stability of the financial sector as a whole.
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