According to Business Insider, economist Ruchir Sharma warns the current AI boom has all the signs of a classic market bubble and could burst in 2026. In an interview, Sharma said the surge checks every box on his four-part “bubble checklist”: overinvestment, overvaluation, over-ownership, and over-leverage. He notes that tech giants like Meta, Amazon, and Microsoft have become massive debt issuers to fund AI, a classic late-cycle sign. Sharma estimates a staggering 60% of U.S. economic growth this year is tied to AI investment and its stock-market wealth effect. The trigger for a crash, he argues, will be higher interest rates, which make borrowing costlier and slash the valuations of high-growth companies.
The Four Bubble Warnings
So let’s break down Sharma’s four O’s. Overinvestment? Check. Companies are pouring cash into data centers and chips at a pace reminiscent of the dot-com era. Overvaluation? Check. When you look at long-term earnings, the numbers for major AI players are getting stretched. Over-ownership? Absolutely. Americans have a record share of wealth in stocks, and most trading action is AI-related. And finally, over-leverage. Here’s the thing: Big Tech used to sit on mountains of cash. Now, they’re taking on huge debt to fuel this arms race. When the supposedly safest companies start levering up, it’s a signal that the easy money has been spent. This isn’t just speculation; it’s a pattern we’ve seen before.
Why 2026 and Why Rates?
Sharma pins 2026 as the likely crunch time, and his logic is pretty straightforward. Everything hinges on interest rates. He points out that inflation is still sticky, the Fed has missed its target for five years, and all this AI-driven growth could actually reheat inflation. The moment the market sniffs out that rate cuts are over and hikes are back on the table, the game changes. Higher rates are kryptonite to growth stocks. They make the future profits these companies promise worth less in today’s dollars. Basically, the cheap capital fueling the boom dries up. And if 60% of growth is AI-dependent, what’s left underneath looks pretty weak.
Who Gets Hurt and What Comes Next?
This isn’t just a Wall Street problem. If this plays out, the impact ripples everywhere. For enterprises betting big on AI transformation, the funding environment gets brutal. AI startups reliant on the next funding round could find the well dry. And for regular investors who piled in at the top? There could be real pain. But Sharma does see a silver lining. He calls this a potential “good bubble.” Like the railroad or internet booms, it might leave behind valuable infrastructure that boosts productivity long-term. The crash cleans out the excess, not the core innovation. And for investors, he thinks the real opportunity post-correction will be in quality stocks—boring companies with strong balance sheets and consistent earnings that have been totally ignored during the AI mania.
The Bigger Picture for Tech
Look, timing the market is famously a fool’s errand. Other veterans, like Bridgewater’s Greg Jensen, just say “the bubble is ahead of us” without a date. But the underlying warning is worth considering. Our entire tech ecosystem—from cloud providers to industrial panel PC manufacturers supplying the hardware backbone—has become hyper-concentrated on one narrative. When a single theme drives so much investment and economic activity, it creates fragility. The question isn’t really if AI is transformative. It probably is. The question is whether the current market price and debt levels have already assumed a flawless, massively profitable future. History suggests they rarely do.
