Financial and Economic News APP learned that the European Central Bank warned investors on Wednesday that concentrating too much funds in U.S. technology stocks, especially the 'Big Seven US Stocks' and other popular AI-related stocks, may pose a potential 'asset price bubble'. The European Central Bank pointed out: 'In recent years, the market cap and profit concentration of a few technology companies (especially in the U.S.) have greatly increased, which has raised strong concerns about the possibility of an artificial intelligence (AI) asset price bubble.'

A few large technology companies with excessively high market cap concentration in the S&P 500 index have raised concerns among investors about the potential for an asset price bubble in artificial intelligence-related assets. The European Central Bank stated in its latest 'Financial Stability Review': 'In addition, in the context of deep global equity market integration, disappointing profit expectations from these large technology companies could lead to very unfavorable global spill-over risks.'

The European Central Bank also expressed concern about excessive global fund investments in a few large technology companies. The report pointed out: 'In recent years, the concentration of market cap weight and earnings per share weight in benchmark stock indexes has significantly increased in a few tech giants, especially in the U.S.'

The European Central Bank stated that the 'Big Seven US Stocks' (namely the Magnificent Seven) account for over 30% of the total market cap of the S&P 500 index. The report specifically highlights in a diagram the high proportion of the 'Big Seven Tech Giants' in the market cap of the S&P 500 index. The report believes that in the context of deep global equity market integration, if these companies' profit expectations fall short, this 'price bubble' could suddenly burst, leading to very unfavorable spill-over effects on the global financial markets.

The top seven U.S. tech giants with significant weights in the S&P 500 index and Nasdaq, known as the 'Magnificent Seven', include: Nvidia, Apple, Microsoft, Google, Amazon, Meta Platforms, and Tesla.

The report notes: 'It is worth noting that in the past few quarters, the performance reports of large tech companies such as Nvidia have had a very significant positive or negative impact on the volatility of global stock markets.'

The European Central Bank states that this means that due to their high weight in the S&P 500 index, the sharp fluctuations in the U.S. tech industry, such as significant drops or oscillations, may lead global stock funds to face spill-over risks due to large market cap variations in these tech giants.

The report points out: "The significant increase in investor demand has led to additional investments in these companies, while the concentration of technology giants has greatly expanded, mainly due to the substantial rise in market cap and valuation of a few large US technology companies." "Against the backdrop of high overall market concentration, potentially overvalued valuations, and increased volatility risks, individual companies or the US technology industry may be impacted, leading to a major drop in US stocks. This in turn may result in a significant decline in the ROI of global equity stock funds due to an excessively high allocation to US stocks, followed by extensive profit-taking in the domestic stock markets to offset losses in the US stock market, ultimately leading to a large-scale outflow of funds from global equity markets, further magnifying and exacerbating the negative dynamics of the global market."

The European Central Bank serves 20 European countries that use the euro. One of its main responsibilities is to set interest rates for commercial banks in the Eurozone to manage money supply and inflation.

The European Central Bank's report also warns of vulnerabilities in the financial system to cyber attacks and the impact of climate change.

The report states: "These issues are closely related to climate-related risks in the process of achieving a low-carbon economy (including risks related to transitioning to a low-carbon economy and practical risks), vulnerabilities in cybersecurity (including systemic IT provider interruptions), and the rise of artificial intelligence. At the same time, geopolitical divisions and increasing fragmentation lead to a setback in global economic, trade, and financial integration."

Finally, uncertainty also arises from the war between Russia and Ukraine, ongoing conflicts in the Middle East, escalating trade tensions with China, and potential new tariffs that the USA may impose.