AI Stock Bubble Could Burst: Norway’s $1.8 Trillion Fund and ECB Economists Sound the Alarm
Central banks and the world’s largest sovereign wealth fund are warning that the artificial intelligence stock boom is overheating, with a sharp correction in U.S. tech shares likely to hit global markets.
The warning comes as investors pour record amounts into AI-linked companies, pushing valuations to levels that experts say are disconnected from actual earnings.
Nicolai Tangen, CEO of Norway’s sovereign wealth fund—which owns roughly 1.5% of all listed companies globally—said soaring valuations in AI-related firms could trigger a sudden market drop. He cautioned that investors may be overestimating short-term AI profits, and noted that markets are "pricing in perfection" [221354].
In a separate warning, economists at the European Central Bank (ECB) published a blog post saying a sharp fall in U.S. technology stocks could threaten financial stability in Europe. They pointed to high valuations driven by AI excitement and stressed that "the longer the boom continues, the larger the potential for a sharp adjustment" [221093].
The ECB team warned that European banks and investment funds hold large amounts of U.S. assets, meaning a sudden reversal in sentiment could ripple across the euro zone’s financial system. They urged regulators to monitor exposure to U.S. markets more closely [221093].
The warnings come as fresh data shows consumer spending weakening. U.S. stocks fell after the Commerce Department reported retail sales came in below forecasts, with the Dow Jones Industrial Average down 1.2% and the S&P 500 and Nasdaq each losing more than 1.5% [219584].
Adding to the concern, analysts note that some Big Tech profits are being inflated by investments in other tech firms rather than core business growth. When one major company invests in another, rising stake values are counted as investment income, creating a circular effect that can make companies look healthier than they really are [219577].
The AI infrastructure buildout is also increasingly financed through debt instruments that are harder for regulators and the public to see, including bonds, equipment leases, and private capital. This shift introduces new financial risk, as leveraged investors are betting on infrastructure that has yet to prove its profitability [219507].
Tangen did not predict a specific timeline for a downturn, but stressed that the gap between current prices and underlying business performance is "concerning" [221354]. The ECB economists similarly did not predict a specific date or size for a possible correction, but said the risk is growing [221093].