Mohammed El-ErianAllianz’s chief economic adviser strongly warned on Thursday that investments in some AI-related names will “end in tears”, even as he categorized the boom as a “rational bubble”.
A ‘rational bubble’ with limited winners
El-Erian argued that while AI is an “important general-purpose transformational technology” on par with electricity, the current market frenzy is pulling weaker companies to the fore alongside a “limited number of winners,” he said. CNBC.
“It is rational because everyone has the incentive to overinvest in AI because the returns are so great,” he said. “But you will have a relatively limited number of winners. So there will also be some losers.”
Erian outlines four major AI risks
El-Erian drew a distinction between this and an “irrational bubble” such as the internet bubble, noting that while the impact of AI is real, the “first phase” of major innovation always involves overinvestment.
He also highlighted four major risks that the US is “not handling well”: the lack of a “diffusion policy” to spread productivity, the threat of “bad actors,” the eventual approach to the bubble, and the focus on “labor displacement versus labor improvement.”
He warned that if displacement remains the focus, public support for AI could “evaporate.”
Related: Tech Stocks Now Valued 270% Higher Than Dot-Com Peak: Analysts Say Market Shows ‘Almost Total Neglect of Risk’
Michael Burry sends a cryptic message about AI
El-Erian’s warning comes in the middle of a fierce debate. ‘Big Short’ investor Michael Burry recently issued a cryptic warning that “the only winning move is not to play.”
Other bears, like GQG Partnershave dubbed the market ‘Dotcom on steroids’, and the Bank of England has cited an “AI valuation bubble” as a major global risk.
Conversely, CEO of JPMorgan Jamie Dimon has rejected bubble talk and compared AI to the rise of the internet Goldman Sachs states that high valuations are supported by strong fundamentals.
How can investors play the AI theme?
Here are a few AI-linked exchange-traded funds for investors to consider.
| ETF name | YTD performance | One year performance |
| iShares US Technology ETF (NYSE:IYW) | 30.27% | 37.93% |
| Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) | 27.49% | 36.30% |
| First Trust Dow Jones Internet Index Fund (NYSE:FDN) | 14.31% | 26.91% |
| iShares Expanded Tech Sector ETF (NYSE:IGM) | 30.71% | 39.87% |
| iShares Global Tech ETF (NYSE:IXN) | 30.88% | 37.11% |
| Defiance Quantum ETF (NASDAQ:QTUM) | 37.91% | 82.49% |
| Roundhill Magnificent Seven ETF (BATS:MAGS) | 23.62% | 41.07% |
The market remains volatile despite the skepticism. The S&P 500, which rose 16.25% in 2025, hit a new 52-week high this week at 6,920.34. However, optimism was tempered on Thursday as the tech-heavy Nasdaq 100 fell 1.47% to 25,734.81 before futures pointed to a recovery on Friday.
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Disclaimer: This content was produced in part using AI tools and reviewed and published by Benzinga
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