William Dudley warned of the risk of a financial bubble due to investment in AI

The rush to invest in AI technologies may soon result in a new financial bubble in the US stock market. The former head of the Federal Reserve Bank of New York, William Dudley, warned about this threat to the global economy in his column for Bloomberg.

Key indicators indicate dangerous overheating of the market, he noted. Thus, the Shiller ratio (CAPE, a financial indicator for assessing the high cost or cheapness of the stock market, equal to the current stock price divided by the average profit of companies over the past 10 years, adjusted for inflation) is now at 41, with a norm of about 17. The Buffett indicator (the ratio of market capitalization to GDP), in turn, has reached 240 percent. At the same time, Warren Buffett himself considers the market to be overvalued already at 100 percent.

In the medium term, Dudley believes, the growth rate of investment in AI projects will begin to slow down significantly due to shortages of electricity and chips. Large data centers, the construction of which is now actively financed around the world, consume huge amounts of resources, and the global supply of chips for training artificial intelligence models remains limited. “The bubble in the US stock market may burst before the end of 2027,” Dudley stated.