A prominent investor recently warned that artificial intelligence , which drives market and corporate spending, is... The AI boom may experience a "hard landing" in 2026.
Ruchir Sharma is currently the Chairman of Rockefeller International, a wealth management and financial advisory firm. Rockefeller Capital Management, originally founded in 1882 as the family office of John D. Rockefeller, focuses on providing strategic advice to ultra-high-net-worth and high-net-worth individuals and families, institutions, and corporations. Rockefeller International is a division of the firm that aims to expand its business beyond the United States.
He also founded the investment firm Breakout Capital and served as its CEO; the firm primarily invests in emerging markets.
In an interview, he stated that the rapid development of artificial intelligence now meets the four characteristics of a bubble he identified. A single trigger—higher interest rates—could cause the entire bubble to burst in 2026.
He explained that higher interest rates will reduce the availability of cheap capital that drives investment in artificial intelligence and put downward pressure on the valuations of growth stocks.
Four characteristics of bubbles
To diagnose a bubble, Sharma proposed the so-called "4O rule": overinvestment, overvaluation, over-ownership, and over-leverage. He warned that the AI boom is flashing red lights in all four areas.
Sharma stated that the surge in US spending on artificial intelligence and technology is comparable to past bubbles, such as the dot-com bubble. Judging from long-term profitability and free cash flow, the valuations of major AI companies are also approaching bubble levels.
He said that at the same time, Americans are holding a record proportion of stocks in their wealth, with most of these transactions related to artificial intelligence.
Furthermore, while large tech companies have maintained ample cash reserves for years, they are now issuing massive amounts of debt to finance the artificial intelligence arms race. Sharma points out that in the past few months, Meta, Amazon, and others have... and Microsoft It has become the "largest bond issuer," a typical sign of a late-cycle bubble.
Sharma estimates that about 60% of U.S. economic growth this year will be driven by artificial intelligence, through companies investing in new infrastructure and through the wealth effect of the stock market boosting spending by high-income consumers.
He warned that without artificial intelligence, the potential economy looks much weaker, which is why Sharma believes AI deals have become so crowded.
“Beyond artificial intelligence, the U.S. economy has many weaknesses. The huge bet on AI had better be in the U.S.'s favor, because if it fails, I think the country will have a lot of trouble in the future,” he said.
2026 may be a turning point
Sharma further pointed out that there is one thing that can burst all bubbles, and that is rising interest rates.
He pointed out three unfavorable factors. First, inflation remains "stubborn" and is far from the Federal Reserve's 2% target. Second, the Fed has failed to reach its target for five consecutive years and may soon face pressure to stop cutting interest rates. Third, investment driven by artificial intelligence continues to grow strongly, which could again push up inflation. Swelling.
“ I think that as soon as there’s even the slightest indication that interest rates are about to rise, that’s a ‘enough is enough’ signal. This is because higher interest rates increase borrowing costs and lower the valuations of high-growth companies—which is exactly the condition for a bubble to burst,” he said, predicting that this moment could arrive in 2026.
A "good bubble"
Sharma suggests that the AI boom may be a "good bubble" that could ultimately boost productivity—like past tech crazes, it overdid things but left behind valuable infrastructure. However, this doesn't mean investors won't suffer.
However, he believes that after the stock market correction, one sector may stand out: high-quality stocks —companies with high return on equity, strong balance sheets, and stable earnings.
He said that during the AI boom, this category significantly underperformed the market, creating what he calls the "only best investment idea" heading into 2026.
(Article source: CLS)
