The European Central Bank warns of the bubble risk in the "seven giants" of the US stock market, and a sharp decline may affect the global market.

The European Central Bank warned investors on Wednesday about the potential "asset price bubble" that may exist if too much money is concentrated in US tech stocks, especially the "Big Seven" and other popular artificial intelligence-related stocks. The ECB pointed out, "In recent years, the stock market valuation and profit concentration of a few technology companies (especially in the US) have significantly increased, raising concerns about the possibility of a bubble in AI-related assets." "The high concentration of market value of a few large technology companies in the S&P 500 index has raised concerns among investors about the possibility of a bubble in AI-related assets." The European Central Bank stated in its latest Financial Stability Review. "Additionally, in the context of deep integration of global stock markets, disappointing earnings expectations from these large technology companies could lead to very unfavorable global spillover risks." The ECB also expressed concerns about excessive funds being invested in a few large technology companies on a global scale. The report highlighted, "In recent years, the concentration of market value and earnings per share weight in benchmark stock indices has increased significantly among a few tech giants, especially in the US." The ECB noted that the "Big Seven" tech giants in the S&P 500 index account for over 30% of the total market value. The report specifically highlighted in a diagram the high proportion of the "Big Seven" tech giants in the S&P 500 index market value. The report warned that in the context of deep integration of global stock markets, if these companies fail to meet their profit expectations, this "price bubble" could suddenly burst, leading to highly unfavorable global spillover effects in the financial markets. The "Magnificent Seven" US tech giants, which hold high weights in the S&P 500 index and NASDAQ, include: Nvidia, Apple, Microsoft, Google, Amazon, Meta Platforms, and Tesla. The report pointed out, "It is worth noting that in the past few quarters, performance reports from large tech companies like Nvidia have had a very significant positive or negative impact on global stock market volatility." The ECB stated that the high weight of these companies in the S&P 500 index could lead to global stock-type funds facing spillover risks from the significant changes in market value of these tech giants due to severe fluctuations in the US tech industry, such as dramatic declines and fluctuations. The report mentioned, "The significant increase in investor demand has led to additional investments in these companies, while the concentration of tech giants has significantly expanded, mainly due to the significant rise in market capitalization and valuation of a few large US technology companies." "Against the backdrop of high overall market concentration, potential overvaluation, and increased volatility risks, individual companies or the US tech industry being affected could lead to a sharp drop in US stocks, resulting in a significant decline in returns for global stock-type funds due to the high allocation of US stocks, followed by profit-taking in domestic stock markets to cover losses in the US stock market, ultimately leading to a large-scale outflow of funds from global stock markets, further amplifying and exacerbating negative dynamics in the global markets." The European Central Bank serves 20 European countries that use the euro. One of its main responsibilities is to set interest rates for loans provided to commercial banks in the euro area to manage money supply and inflation. The ECB's report also warned about vulnerabilities in the financial system from cyber attacks and the impact of climate change. The report stated, "These issues are closely related to risks associated with achieving a low-carbon economy (including risks related to the transition to decarbonization and physical risks), cybersecurity vulnerabilities (including systemic IT provider disruptions), and the rise of artificial intelligence; at the same time, geopolitical divisions and increasing fragmentation are leading to a setback in global economic, trade, and financial integration." Lastly, uncertainty also arises from the war between Russia and Ukraine, ongoing conflicts in the Middle East, escalating trade tensions with China, and the possibility of new tariffs imposed by the United States.