RBA Warns of High Expectations in AI Share Prices

The Reserve Bank of Australia (RBA) has cautioned that share prices linked to artificial intelligence are already embedding "very strong expectations" about future adoption, productivity, revenue growth, and profitability. This observation appears in the RBA's October Financial Stability Review, released on October 1, which highlights the significant optimism currently reflected in AI-related equity prices.

The Review notes that while it does not declare AI shares overvalued or predict a fall, the high expectations leave little room for disappointment. The RBA identifies four key areas where these expectations are concentrated: the speed and extent of AI adoption, its impact on productivity, revenue growth for AI-related businesses, and their profitability. Each of these assumptions makes AI-related share prices sensitive to future outcomes.

AI appears in multiple contexts within the RBA's recent communications. In financial markets, the Review warns about low risk premia and high hedge fund leverage, alongside the strong expectations in AI shares. In inflation, AI is driving up global prices for technology-related goods. Operationally, advances in AI are noted as a potential risk to the financial system.

The RBA emphasizes that Australia's financial system remains resilient, despite growing global and operational vulnerabilities. The Review also highlights upcoming events, including speeches by Deputy Governor Andrew Hauser and Assistant Governor Brad Jones, as well as the November cash rate decision.