{"id":462063,"date":"2025-12-21T11:16:18","date_gmt":"2025-12-21T11:16:18","guid":{"rendered":"https:\/\/www.europesays.com\/us\/462063\/"},"modified":"2025-12-21T11:16:18","modified_gmt":"2025-12-21T11:16:18","slug":"ai-boom-or-bubble-is-the-ai-bet-driving-us-growth-into-risky-territory-ruchir-sharma-explains","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/462063\/","title":{"rendered":"AI boom or bubble? Is the AI bet driving US growth into risky territory; Ruchir Sharma explains"},"content":{"rendered":"

\"AILeft- AI generated reperesentative image; Right- Ruchir Sharma (File photo) The global economy has entered a phase where artificial intelligence has become the dominant force shaping growth, markets and policy, with the US now the most exposed to both its promise and its risks, according to economist and investor Ruchir Sharma.\u201cThis big factor has out-Trumped Trump \u2013 AI,\u201d Sharma said in a conversation with Nicolai Tangen, earlier on December first week, arguing that artificial intelligence has now become \u201cthe singular focus of the global economy and particularly the US economy\u201d. <\/p>\n

Big Tech’s $70 Billion AI Move: Silicon Valley Bets On India, Snubs Trump’s ‘America First’ Diktat<\/p>\n

Ruchir Sharma, chairman of Rockefeller International and founder and chief investment officer of Breakout Capital, is a veteran global investor and economic commentator.\u201cThe US economy has now become one big bet on AI,\u201d he said. \u201cOutside of AI, there\u2019s a lot of weakness in the US economy. But AI has continued to drive everything.\u201dSharma warned that the scale of this concentration leaves little margin for error. \u201cThis big bet on AI better works out for America,\u201d he said. \u201cBecause if it doesn\u2019t work out, then I think that there\u2019s a lot of trouble for this country ahead.\u201d<\/p>\n

AI now dominates US economic growth<\/p>\n

Veteran analyst pointed to the growing contribution of AI-linked capital expenditure to US growth. \u201cThe measures currently show that about 40% of economic growth in America this year has come from capex spending towards AI,\u201d he said.Beyond investment, he stressed the importance of the wealth effect. \u201cThe stock market doing well, the financial assets doing well \u2014 that is clearly powering the spending of the top 10% in this country,\u201d Sharma said. \u201cAnd the top 10% is what\u2019s driving the entire consumer spending.\u201dHe added that market gains themselves are heavily concentrated. \u201cAbout 80% of the gains in the stock market this year have been powered by AI plays,\u201d he said.\u201cBy some measures, you can argue that about 60% of economic growth in America today is being driven by AI.\u201d<\/p>\n

Productivity gains remain uncertain<\/p>\n

Despite the scale of investment, Sharma said it is still too early to see decisive productivity gains from AI. \u201cAI adoption is still in its nascent stage,\u201d he said. \u201cSo far, it\u2019s too early.\u201dAsked how much of recent productivity improvement can be attributed to AI, Sharma replied, \u201cVery little as yet.\u201dDrawing a comparison with the internet boom, he said, \u201cIf you look back at the internet revolution in the late 1990s, the big bump in productivity really happened later. It takes a while for these benefits to come through.\u201dHe also said there is still uncertainty about how AI will ultimately be used. \u201cWe don\u2019t even know as yet what exactly AI is going to end up doing,\u201d Sharma said.<\/p>\n

\u2018The most hated tech revolution\u2019<\/p>\n

The author of What Went Wrong with Capitalism, Ruchir Sharma argued that AI differs from past technological revolutions because of widespread fear rather than optimism.\u201cThis is the most hated tech revolution,\u201d he said. \u201cIf you look back at the other big revolutions, people were very optimistic about what it would bring.\u201dBy contrast, Sharma said surveys show deep anxiety. \u201cOnly about 35% of people are feeling good about AI,\u201d he said. \u201cMost people want this to be regulated because they\u2019re fearful about the impact.\u201d\u201cOne, all the techno-optimists are telling them, \u2018We\u2019re coming for your job.\u2019 And second is just fear \u2014 people don\u2019t know how to use these tools,\u201d he added.<\/p>\n

Bubble signals are flashing<\/p>\n

While calling AI a \u201cgood bubble\u201d, Sharma said the market displays multiple warning signs.\u201cI look at the four O\u2019s,\u201d he said \u2014 \u201coverinvestment, overvaluation, overownership and overleverage.\u201d On investment, he said, \u201cTech investment as a share of GDP is about 5% today. That\u2019s roughly what we saw back in 2000.\u201dOn valuations, Sharma said, \u201cBy any stretch, the US stock market \u2014 and of course the AI plays \u2014 are overvalued.\u201d While price-to-earnings ratios may not match dotcom levels, he said, \u201cIf you look at price to free cash flow or very long-term earnings, by those measures we are getting there.\u201dOverownership is also visible. \u201cAmericans have about 52% of their financial wealth in equities today,\u201d Sharma said. \u201cThat is higher than what it was even in 2000.\u201dOn leverage, he said conditions are changing fast. \u201cThe biggest issuers of debt in the last few months have been companies like Meta, Amazon and even Microsoft,\u201d Sharma said, as firms rush to stay ahead in the AI arms race.<\/p>\n

Interest rates are the real trigger<\/p>\n

Sharma said bubbles rarely burst because of technology disappointment alone.\u201cEvery single bubble or mania in history has been pricked by just one factor \u2014 when interest rates finally go up,\u201d he said.He expressed concern about the Federal Reserve\u2019s policy stance. \u201cInflation is already quite sticky,\u201d Sharma said. \u201cThe Fed\u2019s 2% target is nowhere in sight. The Fed has missed its 2% target for five years in a row.\u201d\u201cThe fact that the Fed is cutting interest rates in this environment is completely bewildering to me,\u201d he added.If inflation accelerates or rates rise, Sharma warned, \u201cThat\u2019s when this entire overinvestment AI bubble will burst.\u201d<\/p>\n

Global markets rotate away from the US<\/p>\n

Sharma said one of the biggest surprises this year has been the underperformance of US markets relative to Europe, emerging markets and China.\u201cAt the beginning of the year, everyone was onto the American exceptionalism trade,\u201d he said. \u201cInstead, Europe, emerging markets and China have outperformed America.\u201dHe said extreme positioning played a role. \u201cAmerica\u2019s weight in global equity indices was hitting nearly 70%,\u201d Sharma said.But reforms also mattered. \u201cIn Europe, expectations were very low, but at least countries like Germany began to wake up and say, \u2018We need to do something here\u2019,\u201d he said.<\/p>\n

China\u2019s private sector pivot<\/p>\n

Sharma said China\u2019s market rebound reflects necessity rather than ideology.\u201cThe economy in China is in big trouble outside of AI,\u201d he said. \u201cThe property market is bust.\u201dHe said Beijing realised that competing with the US on AI required a shift. \u201cThere was a very important pivot,\u201d Sharma said. \u201cChina realised that if we have to compete with America on AI, we need to back the private sector again.\u201d\u201cJack Ma is back at Alibaba,\u201d he noted, adding that the stock has doubled this year.<\/p>\n

Government power and tariffs<\/p>\n

Sharma said the expanding role of the state continues to distort capitalism.\u201cThe asymmetry remains,\u201d he said. \u201cOn the upside, you capitalise the gains. On the downside, the risks are socialised.\u201dOn tariffs, he said, \u201cThere\u2019s no objectivity or science behind it. It\u2019s very arbitrary.\u201dWhile tariffs have helped revenues \u2014 cutting the US deficit by about 1% of GDP \u2014 Sharma said, \u201cTariffs have had a negative effect on economic growth. It\u2019s just been offset by the optimism around AI.\u201d<\/p>\n

Quality stocks offer a contrarian opportunity<\/p>\n

Looking ahead, Sharma highlighted quality stocks as a neglected opportunity.\u201cThe last 12 months have been one of the worst runs that quality stocks have had in recorded history,\u201d he said.\u201cThere has never been a better time to buy quality stocks,\u201d Sharma added, referring to companies with high returns on equity, low leverage and strong cash flows.He also expects global markets to continue outperforming the US. \u201cThese tend to be multi-year trends once they begin,\u201d he said.While he declined to predict exact timing, Sharma offered a clear signal to watch: \u201cAt the slightest sign that interest rates are going to go up \u2014 that\u2019s when you know this is done.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Left- AI generated reperesentative image; Right- Ruchir Sharma (File photo) The global economy has entered a phase where…\n","protected":false},"author":3,"featured_media":462064,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[210740,98482,738,64,69,79,56808,210739,210738,67,132,68,210741,31372,210742],"class_list":{"0":"post-462063","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-ai-boom-or-bust","9":"tag-ai-bubble","10":"tag-artificial-intelligence","11":"tag-business","12":"tag-donald-trump","13":"tag-economy","14":"tag-global-market","15":"tag-rockefeller-international","16":"tag-ruchir-sharma","17":"tag-united-states","18":"tag-unitedstates","19":"tag-us","20":"tag-us-market","21":"tag-us-tariffs","22":"tag-us-vs-china"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115757278530329872","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/462063","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=462063"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/462063\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/462064"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=462063"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=462063"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=462063"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}