Erik Gordon Denounces Stock Market Illusion: AI Reigns Supreme

A Disconnected Vision of Economic Reality

Stock markets are reaching unprecedented heights, but according to Erik Gordon, a professor at the University of Michigan, investors seem to be living in a bubble where economic and geopolitical realities are ignored. Gordon emphasizes that international tensions, fluctuations in oil prices, and massive job losses are sidelined by investors, who focus exclusively on companies related to artificial intelligence.

Gordon criticizes this attitude, stating that the stock market has created a parallel universe where only companies with "AI" in their name seem to hold value. This disconnection could have serious consequences if the ignored risks eventually materialize. He specifically pointed out that the market is overlooking the war in the Middle East, inflation, volatile oil prices, and tens of thousands of job cuts.

The Striking Example of Allbirds

To illustrate his point, Gordon cites the case of Allbirds, a company known for its sneakers, which recently announced a major strategic shift. By pivoting towards AI infrastructure under the name NewBird AI, Allbirds saw its stock soar nearly 600% in a single day. This radical change in strategy demonstrates how much AI has become a magic word to attract investors, even when the connection to the company's core business is tenuous.

Gordon compares this situation to a spectacle orchestrated by PT Barnum, famous for his hoaxes, highlighting that some companies might exploit this trend to mask their decline. He mentioned that if a company can deceive people into believing it is an AI company, it earns the 2026 PT Barnum Award.

Stock Indices Rising Despite Turbulence

Despite geopolitical tensions, particularly between the United States and Iran, and the disruptions they cause to global trade, the S&P 500 index has risen by more than 10% this month. This increase comes as oil prices reach record levels, threatening to slow global economic growth and reignite inflation.

At the same time, the tech sector is experiencing waves of layoffs, justified by the optimization enabled by AI. However, this reduction in workforce could ultimately impact household spending and, consequently, corporate profits.

Skeptical Voices Amidst the AI Hype

Erik Gordon is not the only one expressing doubts about the frenzy surrounding AI. Michael Burry, known for predicting the subprime crisis, warns that large tech companies may overinvest in AI, artificially inflating their profits and diluting shareholder value.

Jeremy Grantham, co-founder of GMO, shares this concern, labeling AI as an "obvious bubble" that will eventually burst. Gordon had previously warned that the AI bubble could cause damage comparable to that of the bursting of the dot-com bubble, affecting an even larger number of investors. He stated that the AI bubble is as big as the planet Jupiter and that debris will be everywhere once it bursts.

In August, Gordon sounded the alarm on an overvaluation bubble of a magnitude. He warned that more investors will suffer than those who suffered during the collapse of the dot-com bubble, and their suffering will be more painful.

Diverging Perspectives on the Future of AI

Despite these warnings, some investors like Ross Gerber and Kevin O'Leary remain optimistic, believing that AI continues to generate significant productivity gains. They point out that companies like Nvidia are benefiting from rapid revenue growth thanks to AI.

The question of whether the stock market is indeed disconnected from reality, as Gordon suggests, or if investors are accurately anticipating the future returns of AI, remains open. Only time will reveal whether this fascination with AI was justified or if it concealed deep vulnerabilities.