Stock investors are living in a parallel reality where AI trumps everything, and threats can be safely ignored, Erik Gordon says.
“The market shrugs off war in the Middle East, inflation, wild oil prices, and tens of thousands of job cuts,” the entrepreneurship professor told Business Insider.
“It fabricated its own universe where the only things that are real are companies with ‘AI’ in their name,” he added.
Gordon, who teaches at the University of Michigan’s Ross School of Business, gave the example of Allbirds. The sneaker company recently announced a pivot to supplying AI infrastructure under the name NewBird AI, sending its stock price up nearly 600% in a single day.
“If your company that is yesterday’s news is tanking and you can fool people into thinking you are worth investing in today by claiming to be an AI company, you get the 2026 PT Barnum Award,” Gordon said, referring to the legendary showman known for his hoaxes and publicity stunts.
“Extra points if you are way behind real AI companies that have advanced technology and billions to spend to keep it advanced,” Gordon added.
The S&P 500 has surged more than 10% to all-time highs this month, despite the US-Iran war disrupting international trade and energy flows, catapulting oil prices to four-year highs, and threatening to choke global economic growth and reignite inflation.
Tech companies have also laid off tens of thousands of employees, with many saying AI has allowed them to be leaner. Escalating job losses could squeeze household budgets, curb consumer spending, and pinch corporate profits.
Skeptics and believers
Gordon is one of many skeptics of the AI boom. Michael Burry, the investor of “The Big Short” fame, has warned on his Substack that Big Tech companies are seeing slower growth, overinvesting in AI equipment, inflating their earnings, diluting their shareholders, and signing circular contracts with one another to keep the hype alive.
Jeremy Grantham, the cofounder of investment firm GMO, has said AI is “obviously a bubble” and will burst sooner or later.
Similarly, Gordon told Business Insider in January that the “AI bubble is as big as the planet Jupiter,” and “debris will be everywhere” once it bursts.
In August, the veteran professor rang the alarm on an “order-of-magnitude overvaluation bubble.” He cautioned that broader stock ownership and steeper valuations meant that when it pops, “more investors will suffer than suffered in the dot-com crash, and their suffering will be more painful.”
However, other investors such as Ross Gerber and Kevin O’Leary have said they’re not worried about a bubble, as AI is delivering measurable gains in productivity and fueling rapid growth in revenues and profits at companies like Nvidia.
Whether Gordon is right that the stock market is disconnected from reality, or investors are looking past the current chaos and correctly pricing in vast future returns from AI, will only become clear over time.
Read the full article here
