European Central Bank: AI market corrections could have serious consequences for the Eurozone.

European Central Bank researchers warn that after a rapid surge in technology stocks, the stock market may face a correction, which could have serious consequences for the eurozone. Economists including Malin Andersson, Stefano Corradin, and Kalin Nikolov published a blog post on the European Central Bank website on Monday, stating that even if current valuations are reasonable, a market correction should be expected. They provided two complementary explanations. First, as artificial intelligence is applied more broadly, the risks that were once concentrated in individual companies may spread throughout the economy, prompting investors to demand higher risk premiums. Unless profit growth is sufficient to offset this impact, stock prices will decline. Second, overconfident and overly optimistic investors may push prices above levels that fundamentals can support, until market sentiment reverses and valuations correct. These economists warn that eurozone investors may be affected through two channels. On one hand, they directly hold stocks of the "seven giants," including Apple, Alphabet, and Microsoft; on the other hand, the sentiment in the eurozone's own stock market may also be overly optimistic. They stated, "The eurozone's technology sector is smaller and its valuations are not as high, which reduces the risk of a local market crash. However, this offers little comfort: households, insurance companies, and pension funds hold significant exposure through global index-tracking products, and historical experience shows that pressure on the U.S. stock market can also impact the eurozone stock market."