Equity investors live in a parallel reality where AI trumps everything and threats can be safely ignored, says Eric Gordon.
“The market is ignoring wars in the Middle East, inflation, high oil prices, and tens of thousands of layoffs,” the entrepreneurship professor told Business Insider.
“The company has created its own world where only companies with ‘AI’ in their names are real,” he added.
Gordon, who teaches at the University of Michigan’s Ross School of Business, cited the example of Allbirds. The sneaker company recently announced it would pivot to supplying AI infrastructure under the name NewBird AI, sending its stock price up nearly 600% in one day.
“If your company was in the news yesterday and is in trouble, and you can fool people into thinking it’s worth investing in today by claiming to be an AI company, you can win the PT Burnham Award in 2026,” Gordon said, referring to the legendary showman known for misinformation and publicity.
“If you’re far behind the real AI companies that have advanced technology and are spending billions of dollars to keep it advanced, you get extra points,” Gordon added.
The S&P 500 index rose more than 10% this month to a record high, even as the war between the United States and Iran disrupted international trade and energy flows and sent oil prices soaring to a four-year high, hurting global economic growth and threatening to reignite inflation.
Tech companies are also laying off tens of thousands of employees, with many saying AI has helped them slim down. Expanding job losses could put pressure on household budgets, curb personal consumption, and put pressure on corporate profits.
skeptics and believers
Gordon is one of many who are skeptical of the AI boom. Investor Michael Varley, famous for “The Big Short,” warned that at his Substack, Big Tech companies are slowing growth, over-investing in AI equipment, inflating profits, diluting shareholders, and making circular contracts with each other to maintain hype.
Jeremy Grantham, co-founder of investment firm GMO, said AI is “clearly a bubble” that will burst sooner or later.
Similarly, Gordon told Business Insider in January that “the AI bubble is the size of Jupiter” and that once it bursts, “there will be rubble all over the place.”
In August, a veteran professor sounded the alarm about an “extraordinary overvaluation bubble.” He warned that expanding stock holdings and soaring valuations would cause more investors to suffer than those who suffered in the dot-com crash if it erupted. the suffering will become even more painful. ”
But other investors, including Ross Garber and Kevin O’Leary, say they don’t worry about a bubble because AI is delivering measurable increases in productivity and driving rapid revenue and profit growth for companies like Nvidia.
Time will tell whether Gordon is right about the stock market being disconnected from reality, or whether investors are overlooking the current disruption and correctly estimating the huge future benefits from AI.