Its economists cite concentrated gains, stretched valuations, and profit-dependence as reasons a major US tech correction remains plausible

The European Central Bank (ECB) has warned that the surge in AI-linked technology stocks looks uncomfortably close to past bubble territory, albeit stopping short of declaring an actual bubble.

In a recent blog post, ECB economists noted that a correction in US tech shares is a credible risk, especially because gains have been concentrated in a small number of dominant firms, as reported by Bloomberg.

That warning is notable because the rally has been powered largely by the so-called Magnificent 7, whose oversized role in major indexes means any change in sentiment could spread well beyond Silicon Valley. The ECB notes that if investors begin to doubt how quickly AI spending will translate into profits, the shock could travel through cross-border investment channels and affect European markets as well.

Corroborative signs align

At first glance, valuations can look less extreme than they did a year ago, but that is partly because earnings forecasts have risen sharply. Also:

  • Reuters has reported that tech stocks have climbed roughly 42% over the past year, while the Technology Select Sector SPDR Fund has had its strongest 45-day run since launching in 1999
  • Forward price-to-earnings ratios have fallen about 30% year-over-year because projected earnings have jumped around 80%.
  • The problem, the ECB argues, is that this apparent cheapness depends on those earnings actually materializing.
  • That is where the risk becomes fragile, according to The Economic Times. If AI capacity ends up oversupplied, if customers slow their spending, or if a broader economic shock squeezes corporate technology budgets, analysts could cut profit forecasts without prices falling first. In that case, valuations would rise on paper even if share prices stayed where they are, making stocks look more expensive very quickly.
  • The ECB’s concern also fits a broader pattern seen in other central bank commentary. The Bank of England has compared stretched US equity valuations with the period before the dot-com crash, and Reuters has noted that the ECB itself is framing this as a risk worth watching rather than a crisis already underway.

The broader backdrop is that AI-linked firms have added about US$27tn in value over three years, according to an op-ed in The Atlantic, which values this as roughly 36% of the entire US stock market.

Even so, the ECB’s message is more cautious than categorical: enthusiasm can keep markets elevated for a while, and software stocks have already shown they can wobble and recover within the same cycle. However, the central bank’s underlying point is straightforward: when prices rise faster than profits, the gap between narrative and fundamentals is exactly what has turned past technology booms into painful corrections.