ECB Sounds Alarm on EU's Exposure to AI-Driven US Stock Market

The European Central Bank (ECB) has warned that a sharp fall in US stocks could trigger a financial crisis in Europe, highlighting the risks of an AI bubble bursting. The ECB analysts said that the AI boom has driven Wall Street valuations to 'nosebleed levels,' leaving the eurozone exposed.

European households have €440bn invested in US tech stocks, mainly held in investment funds tracking stock market indexes. This means a plunge in equity markets could be very painful for European investors. Pension funds and insurers are also highly exposed to the seven most valuable US companies, known as the 'Mag 7.'

The ECB warned that if stocks in the largest US tech companies, such as Alphabet, Nvidia, and Apple, nosedive, it would be a question of financial stability for the euro area. They added: 'The effects of a US correction could extend beyond financial markets to euro area sentiment, financing conditions, and hiring.'

The warning comes as Nvidia announced plans to invest more than $100bn in a huge new data centre for OpenAI in Ohio. The deal has raised concerns about so-called 'circular financing' in AI, where companies loan money to their customers or invest in them to buy their products.