Artificial intelligence may be the greatest economic revolution of our generation. But a technological revolution, however spectacular, does not justify any price on the stock market. As concerns mount over the emergence of a speculative bubble surrounding AI, David Kalfon, President of Sanso Longchamp AM believes an uncomfortable question deserves to be asked: are financial markets still funding tomorrow’s growth? Or are they already paying too much for promises that have yet to materialize?
When everyone believes in the same revolution, who is still taking the time to assess its price? There is something paradoxical about the current enthusiasm for artificial intelligence. Never have investors had so many tools at their disposal to analyse companies, anticipate trends and assess risks. Yet the narrative surrounding a technological transformation has rarely seemed to play such a central role in certain investment decisions.
AI is captivating because it promises to transform productivity, industry, services, research and the way we work, all at once. This transformation is real. Its economic potential is considerable.
But that is precisely where the trap lies. Financial markets have a particular characteristic: they do not simply anticipate the future. Sometimes, they price it in long before it materializes. A company can revolutionize its industry and still prove to be a poor investment if its valuation already reflects years of exceptional growth. The problem is not believing in artificial intelligence. The problem is believing that it makes every valuation reasonable.
Markets Do Not Always Reward the Best Companies. They Also Reward the Most Compelling Stories.
Every major economic revolution comes with a collective narrative. The internet was supposed to transform the world. And it did. Yet that did not prevent the technology bubble from bursting in the early 2000s. Artificial intelligence could follow a similar trajectory in one crucial respect: an innovation can fulfil all its industrial promises without necessarily rewarding investors who financed it at any price.
Today, the global race for AI is driving enormous investment. Infrastructure, semiconductors, data centers and computing power: spending continues to accelerate as companies seek to capture a share of the value generated by this transformation.
But one fundamental question remains: how much of this investment will actually translate into sustainable profits? There can be a considerable gap between a promising technology and a profitable business model, a gap that stock market enthusiasm tends to underestimate.
Not every company will become a market leader. Not every innovation will generate the expected margins. And not every investment made today will necessarily deliver a return tomorrow. In the stock market, being right about the future of a technology does not mean being right about the price of its shares.
Will 2027 Be the Year of Reckoning?
The growing number of warnings about a potential artificial intelligence bubble reflects a shift in how investors perceive risk. But attempting to predict precisely when such a bubble might burst would be a mistake. Financial bubbles do not follow a timetable. They can continue expanding long after the first warning signs appear. Conversely, a simple revision to growth expectations can be enough to trigger a sharp correction when expectations have become excessive.
The real question, therefore, is not whether markets will correct in 2027, 2028 or later. It is what might happen if the earnings of AI-related companies grow more slowly than their valuations currently imply. What if massive infrastructure investments take longer than expected to deliver the anticipated returns? What if competition puts greater pressure on profit margins? What if corporate customers slow their spending? Or what if investors suddenly demand evidence of profitability rather than further promises of growth?
None of these scenarios would necessarily undermine the artificial intelligence revolution itself. But each could profoundly change how markets value its leading players. A technological revolution can continue to accelerate even as the share prices of the companies driving it begin to slow.
The Real Risk : Investment Portfolios Are Becoming Increasingly Alike
There is another danger, less dramatic than a market crash but potentially just as significant: investment concentration. When a handful of major companies become the defining symbols of a technological revolution, they eventually account for a substantial share of stock market indices and, consequently, of many investment portfolios.
This raises a fundamental question for the asset management industry. An investor may believe they are well diversified because they hold several funds, track multiple indices or invest across different geographical regions. Yet behind this apparent diversification, the same large technology companies may repeatedly appear.
The risk is no longer confined to a single company or sector. It becomes the risk of a widely shared conviction on an enormous scale. And when expectations shift, market movements can be amplified by this concentration. The danger begins when millions of investors believe they are diversifying their risks while indirectly betting on the same companies and the same growth expectations.
Asset Managers Must Rediscover the Courage to Go Against the Crowd
In this environment, two approaches would be equally excessive. The first would be to assume that artificial intelligence justifies any valuation simply because it is fundamentally transforming the economy. The second would be to avoid the sector entirely for fear of a bubble. Neither approach, on its own, constitutes an investment strategy.
The role of an asset manager is neither to give in to euphoria nor to embrace pessimism. It is to assess companies, their earnings prospects, competitive advantages, financing requirements and the risks associated with their valuations. This means distinguishing between businesses capable of turning innovation into sustainable cash flows and those whose ambitions still rest largely on projections.
It also means maintaining genuine diversification and, at times, accepting that one may not fully participate in a market rally when the price being asked no longer appears justified. Investment discipline is rarely tested when everything is rising. It becomes essential when markets begin to have doubts.
Artificial Intelligence Will Probably Change the World. But It Will Not Change the Laws of Finance.
Major economic transformations create extraordinary opportunities. They also generate excesses, disappointments and sometimes considerable gaps between expectations and reality. Artificial intelligence is unlikely to be an exception.
It would be absurd to deny its potential. It would be equally dangerous to assume that this potential is enough to eliminate profitability constraints, economic cycles and valuation requirements. The challenge for investors is not to predict the next market correction with an illusory degree of precision. It is to build portfolios capable of withstanding different scenarios, including one in which technological promises materialize more slowly than expected.
The next major mistake financial markets make may not be overestimating artificial intelligence. It may be forgetting that an excellent technology does not automatically make an excellent investment. And if a bubble does indeed form, the most important question will not be who predicted it. It will be who actually prepared their portfolio for that possibility.
