Nicolai Tangen warns Norway's $2.4 trillion fund of AI stock bubble risks

Nicolai Tangen, CEO of Norway's Government Pension Fund Global (GPFG), has issued a stark warning about the potential for an AI-driven stock market bubble. During a recent statement, he highlighted that a severe market collapse could lead to significant losses for the fund's $2.4 trillion portfolio, which is primarily built on the country’s oil and gas revenues. Tangen's concern comes after the fund reported a record profit of 1,753 billion Norwegian kroner ($186 billion) in the first half of the year, driven largely by investments in AI-related technologies.

The warning from Tangen is particularly timely as major technology companies are projected to spend over $1 trillion on AI infrastructure, including chips and data centers, to gain an edge in the race to develop more advanced AI systems. Tangen described the current market conditions as "abnormal," citing historically low taxes, inflation, and interest rates. This situation has allowed the fund to finance about a quarter of the Norwegian government's budget, making it crucial to manage risks effectively.

While some may view Tangen's remarks as alarmist, experts like Bill Megginson, a finance professor at the University of Oklahoma, suggest that many fund managers share his cautious outlook on stock valuations. These managers are reluctant to cash out while the tech sector is undergoing a fundamental transformation fueled by unprecedented levels of investment. The Bank for International Settlements has also cautioned that the current excitement around AI could lead to a market bust if returns fail to meet lofty expectations.

Norway's GPFG follows a passive investment strategy, primarily buying index funds that track global markets, which limits the fund's ability to hedge against market downturns. Unlike other sovereign wealth funds, such as those in Saudi Arabia or Singapore, which actively invest in private equity and infrastructure, the Norwegian fund's strict government mandate prevents significant protective positions. As a result, the fund is left with little room to maneuver, making Tangen's warnings about a possible stock market bubble all the more relevant.