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- The AI frenzy is similar to the crypto craze a few years ago, top economist Paul Romer said.
- The Nobel Prize winner called it "typical bubble hype" and predicted AI progress would slow sharply.
- A narrowing, AI-obsessed stock market could signal an economic slump ahead, another expert said.
The breathless buzz around artificial intelligence is similar to the rabid excitement that surrounded digital assets such as dogecoin and NFTs in recent years, a top economist warned.
"There was this solid consensus only a couple years ago that cryptocurrencies were going to change everything, and then suddenly that consensus just goes away," Paul Romer told Bloomberg TV this week.
"Nobody even asks, 'Gee, why were we so confident and then it blew up?'" he added.
The Nobel Prize winner, former World Bank chief economist, and Boston College professor drew a parallel between the grand claims and rank speculation of that period and the ongoing AI craze.
"Right now there's way too much confidence about the future trajectory of AI," Romer said. "When people project this forward I think they're at risk of making a very serious mistake."
He acknowledged that AI has advanced significantly in the past few years. However, the economist argued there was not enough data available for the tech to keep progressing at the same pace.
"Things are going to slow down a lot," Romer said. "It's just a lot of hype, the typical bubble hype where people are trying to cash in on the latest trend."
He predicted that in two years there would be broad agreement that AI was a bubble and people had overestimated its short-term potential.
Winners and losers
Romer is calling out the kind of AI hype that has boosted Nvidia stock more than sixfold since the start of last year, valuing the graphics chip maker as high as $2.8 trillion — just shy of Apple's market cap.
More staid companies like Nike and McDonald's, and even non-AI tech companies have performed far worse. They're "getting squashed," said Gary Kaltbaum, the president of Kaltbaum Capital Management, told Fox Business this week.
Transportation stocks are also in "bad shape," he said, cautioning that a narrowing market has often preceded past economic slumps.
"I think the economy's now in somewhat of a downtrend," Kaltbaum said. "Not a big recession or anything like that, but heading the wrong way."
Economically sensitive stocks have underperformed recession-resistant ones this year, signaling investors anticipate trouble, he continued.
"The market's speaking up here," Kaltbaum said. "I can promise you, if we head into recession, the market will be down 10% before you even know it."
Taken together, Romer and Kaltbaum see AI-linked stocks as hogging the market's gains — rightfully or not — and view the frenzy as a sign of problems ahead.