Norway’s wealth fund warns AI stock bubble could erase years of gains

The head of the world's largest sovereign wealth fund warned last week that soaring AI-chip stock valuations pose a serious risk of a sharp correction, even as the same technology bets drove the fund to record profits. The warning from Nicolai Tangen, CEO of Norway's Government Pension Fund Global, arrives alongside similar concerns from billionaire investor Ray Dalio, who compared the current AI frenzy to the speculative booms that preceded the 1929 and 2000 market collapses.

Record Gains, Rising Anxiety

Norway's $2.3 trillion fund reported its best first-half performance in years, gaining approximately $185 billion on returns exceeding 9%, according to Bloomberg. Yet Tangen told Bloomberg he remains "cautious on future risks including AI valuations, inflation and geopolitical conflict". In a separate warning reported by DW, Tangen said that in an extreme market collapse, a massive loss to the fund's portfolio is "not completely improbable".dw+1

Technology accounts for roughly a third of the fund's stock investments, and its benchmark-based strategy leaves portfolio managers with "almost no room to deviate from the index or actively hedge," according to Karin Thorburn, research chair in finance at the Norwegian School of Economics. Norges Bank Investment Management has stress-tested an AI correction scenario that could reduce the fund's value by around 18%, or approximately €432 billion — equivalent to nearly seven years of Norway's energy revenues.dw

Dalio Draws Historical Parallels

Ray Dalio, founder of Bridgewater Associates, echoed those concerns on The Diary of a CEO podcast, saying the AI boom shows "classic signs" of a bubble. "People get into a new technology, they say 'that's miraculous, I can bet on that.' Sometimes they borrow money to bet on it, and they lose sight of the price," Dalio said, according to Inc.. He compared AI valuations to the speculative excesses that preceded the crashes of 1929 and 2000.finance.yahoo+1

The CAPE ratio for the S&P 500 currently sits near 41, exceeding the 32.6 level reached before the 1929 crash and approaching the all-time high of 44.2 set during the dot-com peak.finance.yahoo

Semiconductor Stocks at Historic Pace

The Philadelphia Semiconductor Index has surged approximately 78% year-to-date, according to MarketWatch data, putting it on track for its best annual performance since 1999. Nvidia ↘ 2.37%, Amazon Amazon.com, Inc. ↘ 0.34%, and Microsoft ↗ 0.21% have all risen in the double digits in recent weeks after a sharp pullback in June and July. The Bank for International Settlements warned in June that AI "exuberance" risks ending in a bust if returns fall short of expectations, while major technology companies are expected to invest more than $1 trillion in AI-related infrastructure in the race to develop advanced models.marketwatch+1