Fear of missing out may be fueling AI rally, says ECB
A television broadcasts crypto market news at the Nasdaq MarketSite in New York, USA, on Thursday, November 20, 2025.
Michael Nagle | Bloomberg | Getty Images
Equity valuations related to AI may be driven by fear of missing out, known as FOMO; But according to strategists, now is not the time to be afraid.
Global stocks remain at persistently high levels, European Central Bank says In the Financial Stability Review he said: on Wednesday. At the same time, concentration among a small group of interconnected US hyperscalers has also intensified, making the market vulnerable to sharp adjustments, it warned.
Hyperscalers often refer to AI-related technology names: Nvidia, Alphabet, Microsoft And Meta.
“Current market prices do not appear to reflect the ever-increasing vulnerabilities and uncertainties,” the review stated.
Investors may be acting “on optimism that tail risks will not materialize,” he added, but these moves “may also reflect fear of missing out on the ongoing rally as markets have proven resilient to recent shocks.”
Strategists have noted some FOMO in the market, but they believe there is still real value in some AI games.
Julien Lafargue, the ECB’s market strategist, said the ECB’s review was designed to highlight potential risks to financial stability. Barclays Private Bank and Asset Management said “even if the probability of these risks occurring is low.”
He said valuations were “not cheap” but companies were growing, and called for differentiation in certain sectors. The greater risk lies with companies that benefit from a rising share price while they have not yet made earnings, Lafargue said, pointing to companies involved in quantum computing.
“In these cases, investor positioning appears to be driven by optimism rather than concrete results,” he said.
“In short, some valuations are driven by ‘FOMO’ while others are driven by exceptional earnings growth, and that’s why differentiation is so important,” he added.
The ECB’s review follows a roller-coaster ride for global stocks for several weeks amid cyclical deals, debt issuance and Nvidia earnings, which buoyed an otherwise deflationary share market weighed down by high valuations. The gains initially caused the tech giant’s shares to rise, but then quickly reversed.
There is debate on whether there is an AI-powered investment bubble in the market, with one investor going so far as to say there is an ‘everything bubble’. Bridgewater Associates founder Ray Dalio voiced concerns, Blackrock’s Larry Fink pushed back on the need to cut big checks for AI infrastructure, and Ark Invest’s Cathie Wood dismissed the bubble idea.
Market sentiment may change
In response, the ECB became the latest in a series of central supporters to call for caution; Previous warnings came from the European Central Bank. Bank of England and International Monetary Fund.
The European central bank did not comment on whether a bubble was emerging but noted parallels with the dot-com boom and bust. “But current high valuations appear to be supported by extremely strong earnings performance,” he added.
Still, “market sentiment could change abruptly not only if growth prospects deteriorate, but also if technology sector earnings – particularly earnings of AI-related companies – fail to meet expectations,” ECB vice president Luis de Guindos wrote in the report.
De Guindos noted that non-bank financial intermediaries in the Eurozone would likely face losses in such a scenario due to their heavy exposure to the US: “Liquidity mismatches in open-ended investment funds, pockets of high leverage among hedge funds and transparency in private markets could increase market stress.”
The ‘Great 7’ shares (Alphabet, Amazon, Apple, Tesla, Meta, Microsoft and Nvidia) are currently up 24% year-to-date. Crypto is volatile, with a massive sell-off happening this month It particularly hit Bitcoin and Ethereum.
“Ultimately, the ECB has a point,” said Michael Field, chief equity strategist at Morningstar. Magnificent 7 stocks make up 40% of the Morningstar US index, which is a risky level of concentration, the strategist said, adding that “the fact that all seven stocks are heavily exposed to the AI theme introduces another level of risk.”
Still, the firm sees positive development in many of these big names. Tesla’sBut it is “more than 50 percent overvalued,” Field said.
“It’s hard to deny that valuations of other stocks exposed to the AI theme have not been stretched based on the ECB’s commentary. Britain’s darling ARM Holdings is trading at almost 90 times our 2026 earnings forecast, twice Nvidia’s multiple. That’s certainly a risk,” he added.
“So should we panic now and start selling the market? The answer is no. But it’s important to be aware of the inherent risk and not get caught up in FOMO as share prices continue to rise,” Field said.
According to Wedbush’s Dan Ives, markets are not in a bubble; This is the third year of eight to 10 years of development for an Artificial Intelligence Revolution, he told CNBC. He thinks “this tech bull market” is not a boom but has another two years left before it slows down.
“It’s 10.30pm at the AI party and it lasts until 4am and the ECB will be watching from outside through the windows,” Ives said.
“Europe is in a time capsule around tech innovation with crypto, and it has been a frustrating time for many tech investors and entrepreneurs in the region we have spoken to through our global travels,” he added.
