A leading statistician and market commentator believes the wave of AI-powered panic that is shaking the tech industry is causing more pain.
Nassim Taleb, author of “Black Swan” and advisor to Universal Investments, said the disruption would have a significant impact on software companies and “definitely” lead to bankruptcies in the sector.
Additionally, Taleb predicts that the gains among market leaders of the past few years will be erased as the next winner emerges.
“The last rally was driven by a very small number of stocks, and this time there’s probably going to be some expansionary effect and some redistribution, but that’s going to wipe out a lot of the stock market rally,” he said in an interview on Bloomberg TV.
AI fear trading has been getting a lot of attention lately as new AI products and updates hit software stocks. The decline in recent weeks has spilled over into sectors such as trucking, asset management and insurance companies.
Taleb used historical analogies to further explain his views on the technology sector, noting that pioneering companies are not necessarily the most successful in the long term. He cited not only the original PC manufacturers but also the automobile and aviation industries as examples.
“I’m sure someone will make a lot of money with both AI-related software and hardware, but [that] It doesn’t necessarily have to be these companies because there’s a lot of volatility,” Taleb added.
Black swan events, by definition, are events that no one expected, so Taleb could not guess what would happen next. But that doesn’t mean he doesn’t think the U.S. market doesn’t face major risks as AI disruption continues.
Taleb said that while markets may be acting as if a extreme crash is unlikely, this is not the case and investors should not be lulled into a false sense of security.
“I would say the tail risk in all sectors is cheap,” he said. “So it’s not the risk of a stock market drawdown, it’s the risk of a significant drawdown.”
