ESMA cautions that lofty AI-linked tech valuations could trigger sharp market correction
The European Securities and Markets Authority warned that inflated tech and AI valuations, combined with geopolitical strains, raise the risk of a sudden correction in EU markets.
In its second risk monitoring report of 2026, ESMA highlighted that EU financial markets remain robust but are increasingly vulnerable due to stretched technology valuations and rising geopolitical tensions. Ongoing inflation, slower economic growth and heightened volatility are putting pressure on markets, while AI-driven equities have kept optimism high. The regulator warned that the widening disparity between deteriorating macro-financial fundamentals and buoyant asset prices could lead to abrupt corrections if economic risks materialise or sentiment changes sharply.
Additional concerns include frontier AI risks, tighter ties between crypto-asset markets and the broader system, and growing cyber threats to market infrastructure. ESMA also noted that retail investors are more active on digital platforms, which can encourage speculative behaviour, and that bond markets are facing funding strains as sovereign yields rise.
