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Chapter 6: Blowing bubbles? AI's financial market implications

The AI revolution is likely to add to upward pressure on real and nominal bond yields, but should also be a positive for stock markets. One reason is the prospect of even faster growth in earnings than in output. Another is that we think it will be accompanied by rising price/earnings multiples, as investors seek to crystallise upfront the benefits of a technology that are likely to diffuse only slowly through economies. Our view is that a bubble is starting to inflate in the US, but that it won’t burst for years.

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