"The AI frenzy that's driving markets and corporate spending may be heading for a hard landing in 2026. In an interview with Norges Bank Investment Management CEO Nicolai Tangen, renowned economist Ruchir Sharma said that the AI surge now checks every box on his four-part bubble checklist. And a single trigger could bring it all crashing down in 2026 - higher interest rates. Higher rates reduce the availability of cheap capital that's been fueling AI investment and put downward pressure on growth-stock valuations."
"He said the AI boom is flashing red on all four: overinvestment, overvaluation, over-ownership, and over-leverage. Sharma said that AI and tech spending in the US has surged at a rate that is comparable to past bubbles, such as the dot-com era. Valuations of major AI players are also approaching bubble territory when judged by long-term earnings and free cash flow."
Big Tech AI spending has surged rapidly, mirroring the dot-com era overbuild and creating concentrated market exposure. The AI boom meets four bubble criteria: overinvestment, overvaluation, over-ownership, and over-leverage. Valuations of major AI firms approach bubble levels on long-term earnings and free cash flow metrics. Household wealth is unusually concentrated in AI-related equities, and Big Tech firms have shifted from cash-rich balance sheets to issuing large amounts of debt to fund AI expansion. Roughly 60% of current US growth is attributed to AI-driven infrastructure spending and equity wealth effects, while the underlying non-AI economy appears weaker, increasing vulnerability to higher interest rates and a potential 2026 hard landing.
Read at Business Insider
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