Article By Frank Bergman
World-renowned Wall Street financial analyst Ed Dowd is sounding the alarm that the artificial intelligence (AI) boom has become the “greatest bubble of all time,” warning that its collapse will bring devastating economic turmoil.
Dowd warns that the bubble is about to burst and it will trigger a brutal 40% to 50% market correction.
The veteran money manager and financial analyst at Phinance Technologies previously made his name during the Dot-com bubble.
Before the Dot-com bubble burst, Dowd was warning investors to get out before the technology-driven market frenzy collapsed.
Now, Dowd says he is seeing the same warning signs emerging around AI.
However, this time, he warns the stakes are even higher.
“Being a student of history gives you an idea of where you might go in the future,” Dowd said.
“Currently, we have the greatest bubble of all time, and that is the AI bubble.
“It is in the process of becoming exposed, and people are beginning to issue warning signals.”
‘Then It All Unwinds’
During a recent interview, Dowd pointed to former Goldman Sachs CEO Lloyd Blankfein, who has also raised concerns about the enormous amount of capital concentrated in AI.
But Dowd warned that the problems run much deeper than excessive investor enthusiasm.
The enormous data centers required to support the AI boom consume staggering amounts of electricity, and Dowd argues the infrastructure simply cannot provide enough power to sustain the planned expansion.
“First of all, there is not even enough power to power these data centers,” Dowd said.
“That’s going to halt the CapEx (Capital Expenditure) on its own accord.”
At the same time, AI companies and infrastructure projects will require massive amounts of additional financing.
Dowd warned that demand for capital will increasingly collide with government borrowing.
“There is so much capital that has to be raised that will compete with government debt, there will be a crowding out effect,” he said.
“The costs to finance this are going to keep going higher and higher, and this will cause some bankruptcies . . . and then it all unwinds.”
Dowd Warns of 40% to 50% Market Correction
Dowd warned that the fallout could devastate markets.
“It would not surprise me to see a 40% to 50% correction at some point,” he said.
Dowd cautioned that predicting precisely when the collapse begins is far more difficult.
“Calling when that is going to happen is very difficult. I don’t suggest anyone short the market, but it seems like we are getting closer to the endgame when people are openly calling this a bubble,” he said.
Dowd rejected the argument that a speculative bubble cannot burst once investors recognize what is happening.
“People say the bubble does not pop until everybody believes. That’s not true,” he said.
“There were plenty of people during the 2000 Dot-com bubble who knew it was a bubble.
“They actually played it, and the game was ‘get out before everybody else gets out.’”
Investors knowing they are participating in a bubble does not eliminate the danger, Dowd warned.
It simply turns the market into a race for the exits.
“So, people know it’s a bubble,” he said.
“The question is what will burst it?”
Credit Markets Could Trigger Collapse
Dowd identified credit markets as the potential trigger that could finally burst the AI bubble.
“That is the credit markets and private credit, which have been a big source of funding for AI that is under stress,” he warned.
“There is a default cycle coming, and the general backdrop of the real economy is quite weak.”
Dowd said the warning signs extend well beyond technology stocks.
“The consumer is not doing well,” he said.
“Walmart just reported, and it had the lowest same-store sales in six years.
“The general population is not doing well, the housing market is rolling over, and we have the economic problems with China we have talked about before.”
Those pressures are converging just as enormous amounts of money continue pouring into AI infrastructure and companies.
Dowd warns that the combination is setting the stage for severe market turmoil.
“So, it’s all conspiring to be a nasty correction,” he said.
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