Norway wealth fund sounds alarm on AI stock market bubble

As if the vast scale of artificial intelligence (AI) investments wasn't scary enough, the head of the world's largest sovereign wealth fund is also sounding the alarm.

Nicolai Tangen, CEO of Norway's Government Pension Fund Global (GPFG), warned last week that, in an extreme market collapse, a massive loss to its $2.4 trillion (€2.07 trillion) portfolio is "not completely improbable."

The fund, created to invest the Nordic country's vast oil and gas revenues, delivered a record profit of 1,753 billion Norwegian kroner ($186 billion/€161 billion) in the first six months of the year.

Yet, Tangen warned that the AI-chip trade — whose lofty valuations helped drive those gains — now poses a serious risk. A sharp correction, he warned, could potentially erase much of the massive wealth built up over the past 30 years.

During what Tangen called an "abnormal" period of low taxes, low inflation and low interest rates, the investments now finance roughly a quarter of the Norwegian government's budget.

While Tangen might sound overly alarmist, Bill Megginson, a leading researcher on sovereign wealth funds, believes many established fund managers share his cautious stance on stock valuations, but are "staying the course, queasily."

"Few managers are inclined to take profits when such a fundamental technology buildout, fueled by literally unprecedented levels of capital spending, shows little evidence of brittleness," Megginson, a finance professor at the University of Oklahoma, told DW.

Major technology companies are expected to invest more than $1 trillion in AI-related infrastructure like chips , data centers and power infrastructure in the race to match or beat human intelligence.