Artificial intelligence stocks are increasingly exhibiting the characteristics of a “rational bubble,” driven by massive capital inflows that may ultimately outpace the returns they generate, according to prominent economist Mohamed El-Erian.
In an interview with Bloomberg, El-Erian, chairman of Gramercy Fund Management, said the scale of investment pouring into AI has reached levels where parts of the market are likely to suffer painful outcomes, even as the technology itself delivers genuine productivity gains.
“We are seeing a rational bubble,” El-Erian said, cautioning that “some of these investments will have a sad ending.”
El-Erian said the AI boom is likely to produce a small number of dominant winners while leaving a large number of companies struggling to justify the capital they have absorbed. Intense competition, he noted, will make it difficult for firms without diversified revenue streams to survive what he described as an emerging “AI war.”
Labeling the phenomenon a bubble, however, does not mean it is unjustified, El-Erian added. Unlike speculative manias of the past, the current surge is rooted in real technological advances that are already improving productivity and delivering tangible benefits to consumers.
“The problem is not that the upside doesn’t exist,” he said. “It’s that the gains will not be evenly distributed.”
El-Erian framed the risks using what he called an “80–20 equation”: roughly 80% of AI’s impact is positive, while 20% carries material risks. The danger, he warned, lies in investors and policymakers becoming so focused on the upside that they fail to manage the downside.
“The issue isn’t the 20% negative,” he said. “It’s ignoring it.”
He also pushed back against the narrative that AI’s primary value lies in cutting labor costs. The technology’s real strength, El-Erian argued, is its ability to augment workers and raise productivity, not replace them outright.
Focusing on workforce displacement may be the easiest path in the short term, he said, but it represents a suboptimal use of AI’s long-term potential.
El-Erian’s comments come as global spending on AI reaches record levels, led by major technology companies that turned the sector into one of the world’s most powerful economic engines in 2025.
Looking ahead to 2026, major banks expect investment to accelerate further. JPMorgan forecasts that AI will continue reshaping industries and investment opportunities, with US tech giants expected to spend more than $500 billion on AI. Goldman Sachs estimates total investment could approach $1 trillion by 2027, driven by spending that continues to exceed expectations.
At the same time, a growing share of this expansion is being financed through borrowing, as Wall Street prepares for a surge in corporate bond issuance to fund AI projects, adding a new layer of financial risk to an already crowded trade.
As markets debate whether the AI boom represents the next technological revolution or the seeds of a future correction, El-Erian’s message is clear: the technology is real, the opportunity is vast, but not everyone will survive the race.
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