FX.co ★ UK market poised to weather AI bubble burst amid innovation deficit

The British stock market is expected to demonstrate remarkable resilience in the face of an inevitable collapse of the artificial intelligence bubble. Analysts believe that, unlike the dot-com crash, London is well-protected against overseas technological shocks. Amid recent sell-offs of US tech giants, the UK’s FTSE 100 has risen by 9.21% since the beginning of the year and gained 2% over the past month. In contrast, while the Nasdaq 100 has been up 12.17% since January, it has seen a decline of 3.6% over the last month. Economist Joe Maher is confident that if the hype around AI truly begins to fade, the UK will navigate this crisis far more easily than most global markets.

Paradoxically, the British market’s salvation lies in its relative lack of technology. Ahead of the dot-com crash in 2000, the IT and telecom sectors accounted for roughly 30% of the MSCI UK index, leading to a market decline of 40%. Today, the share of innovative companies in the index has shrunk to a modest 3%, making room for heavy defensive assets that are less vulnerable to corrections in Silicon Valley.

Another factor contributing to stability is the performance of the US economy, which, unlike the recession of 2001, is expected to avoid a hard landing and keep global markets from descending into total panic.

The anticipated weakening of the dollar also plays in London’s favor. An AI bubble burst could lead the Federal Reserve to adopt a more accommodative policy, prompting capital to flow out of the United States and supporting the value of the British pound.

However, analysts caution investors that the recent gains in UK markets are somewhat situational. Major support for the index has come from energy giants, which have surged due to rising oil prices amid escalating tensions in the Middle East, as well as the financial sector, which has benefited from elevated market volatility.

As geopolitical conditions stabilize, these drivers may dissipate. Nonetheless, experts remain steadfast in their global macro forecast: the inflated AI bubble is expected to burst within the next year, and this painful process for Wall Street has likely already begun.