AI stock valuations are definitely in a bubble, says CEA Ananth Nageswaran

India’s chief economic adviser V Ananth Nageswaran has joined a growing list of voices questioning the enthusiasm surrounding artificial intelligence-linked stocks, calling current AI valuations a “bubble” and arguing that the narrative around the technology has become exaggerated.

Speaking at an event, Nageswaran said there is no question that AI-related stock prices and valuations have entered bubble territory, driven by overly optimistic assumptions about productivity gains and the future of work.

“AI-related stocks and AI-related valuations are definitely a bubble. There’s no question about that,” he said.

The comments come at a time when global investors have poured hundreds of billions of dollars into companies linked to artificial intelligence, such as Nvidia and other semiconductor and infrastructure providers, propelling companies to record valuations. The rally has also been fueled by expectations that AI will dramatically improve productivity by reducing labor requirements.

Nageswaran argued that much of the excitement is driven by a narrative that does not fully reflect reality.

“There’s a lot of hype because they want to tell capital contributors and investors that this is going to be such a productivity bonanza, you won’t need anybody to produce the output,” he said.

According to the CEA, the most optimistic AI projections are built around the idea that profits will increasingly accrue to owners of capital rather than workers.

“If you have zero employees, all the profits go to the owners of the capital. That’s the picture they want to paint,” he said.

Acknowledging that AI will affect some categories of jobs and skills, Nageswaran cautioned against the notion that the technology will trigger widespread employment disruption.

“The whole talk about AI and the narrative around it is a bit exaggerated. It will impact some IT skills, which will no longer be needed. But whether it will be a massive disruptor in terms of employment, the jury is still out,” he said.

His comments echo concerns recently raised by Jefferies strategist Christopher Wood, who warned that the risks for a near-term correction in AI-linked stocks have risen significantly.

In his latest GREED & Fear note, Wood said the AI ​​investment theme remains intact but investor positions have become increasingly crowded.

“The overall trend is that the risks for a near-term major reset in AI trading have increased significantly, in terms of a correction, if not yet the end of the story,” Wood wrote.

Wood pointed to unusually concentrated investor holdings in semiconductor stocks and AI infrastructure companies. According to him, several Asia-focused funds now share the same core holdings, including Taiwan Semiconductor Manufacturing Co., Samsung Electronics and SK Hynix.

He also highlighted another emerging risk: a wave of mega public offerings led by Elon Musk’s SpaceX, which could siphon liquidity from existing market favorites.

Wood noted that large IPOs could force investors to allocate capital away from technology winners who have benefited from the AI ​​boom of the past two years.

The caution comes despite continued strong spending on artificial intelligence. Major technology companies are expected to spend hundreds of billions of dollars on AI infrastructure this year, while corporate demand for AI tools remains strong.

However, both Nageswaran and Wood appear unconvinced that current market valuations fully reflect the uncertainties surrounding future returns.

Their concerns come as debates intensify over whether the AI ​​rally will resemble previous episodes of market excess. While today’s leading AI companies are more profitable than many during the dot-com era, critics argue that expectations have increasingly diverged from near-term fundamentals.

The debate has gained added relevance following the listing of SpaceX at a valuation of nearly $1.75 trillion. Blockbuster IPOs have come to symbolize investor appetite for technology and AI-related growth stories, as questions persist about whether such valuations can be justified by future earnings.

For now, neither Nageswaran nor Wood are calling for the end of the AI ​​story. But both signal that investors are underestimating the risks associated with trading in what has become one of the most crowded and expensive themes in global markets.

As AI enthusiasm drives stock prices higher, the question being increasingly asked by policymakers and market strategists is not whether artificial intelligence will transform industries, but whether investors have already priced in that future too much.