AI Bubble Alert: Strategist Warns of Tech-Driven Market Risks as Investor Optimism Soars

Renowned Strategist Warns of AI-Driven Bubble in US Stock Market

Albert Edwards, a veteran strategist at Societe Generale, has issued a stark warning about a potential bubble in US stocks, fueled by enthusiasm surrounding artificial intelligence (AI). Edwards, known for his accurate predictions of past market bubbles, including the dot-com crash and the Japanese stock bubble, is now sounding the alarm on the current state of the US market.

The strategist’s concerns center on the unprecedented concentration of US stocks in the global market and the dominance of the technology sector. US stocks currently account for a staggering 75% of the global market capitalization, a level of concentration that Edwards believes may indicate an over-inflated market. This situation draws parallels to historical bubbles such as the Nifty Fifty and the Japanese market bubble of the late 1980s.

Further exacerbating these concerns is the outsized influence of the tech sector within the US market. Information technology stocks now represent 35% of the US market’s value, surpassing even the peak levels seen during the dot-com bubble in 2000.

Investor sentiment appears to be at a fever pitch, with optimism reaching its highest levels in at least four decades. The Conference Board’s gauge on investor optimism has significantly outpaced actual market performance, a discrepancy that Edwards interprets as a sign of market froth.

Edwards expresses skepticism about the narrative that AI adoption will sustain stock outperformance, drawing comparisons to past bubbles that were driven by compelling but ultimately flawed narratives. This bearish stance stands in stark contrast to the optimistic projections coming from Wall Street, where the median 2025 S&P 500 target suggests a 7.8% upside from current levels.

Reflecting on his past warnings about the Nikkei index and dot-com bubbles, which were initially dismissed, Edwards emphasizes the historical pattern of bubbles ending badly. He expects the current situation to follow a similar trajectory.

As the debate over the sustainability of the current market rally continues, investors and analysts alike will be closely watching for signs of whether Edwards’ dire predictions will come to fruition or if the AI-driven enthusiasm will prove to be justified in the long term.