Investors Are Living in an AI-Driven Fantasy as Markets Ignore War, Oil Shocks, and Job Losses

Stock investors are living in a parallel reality where AI trumps everything and threats can be safely ignored, according to Erik Gordon, an entrepreneurship professor at the University of Michigan’s Ross School of Business.

Gordon said the market “shrugs off” war in the Middle East, inflation, wild oil prices, and tens of thousands of job cuts, having fabricated its own universe where only companies with “AI” in their name are considered real.

He cited Allbirds as an example, noting the sneaker company’s recent pivot to supplying AI infrastructure under the name NewBird AI sent its stock price up nearly 600% in a single day.

“If your company that is yesterday’s news is tanking and you can fool people into thinking you are worth investing in today by claiming to be an AI company, you get the 2026 PT Barnum Award,” Gordon said, referring to the legendary showman known for his hoaxes and publicity stunts.

Gordon added that extra points go to companies that are way behind real AI firms with advanced technology and billions to spend to maintain that edge.

The S&P 500 has surged more than 10% to all-time highs this month despite the US-Iran war disrupting international trade and energy flows, pushing oil prices to four-year highs and threatening to choke global economic growth and reignite inflation.

Tech companies have laid off tens of thousands of employees, with many stating AI has allowed them to operate with leaner workforces. Escalating job losses could squeeze household budgets, curb consumer spending, and pinch corporate profits.

Skeptics and believers

Gordon is among skeptics of the AI boom. Michael Burry, known for “The Big Short,” has warned on his Substack that Big Tech companies are seeing slower growth, overinvesting in AI equipment, inflating earnings, diluting shareholders, and signing circular contracts to sustain the hype.

Jeremy Grantham, cofounder of GMO, has stated AI is “obviously a bubble” and will burst sooner or later.

Gordon previously told Business Insider in January that the “AI bubble is as big as the planet Jupiter,” and that “debris will be everywhere” once it bursts.

In August, he warned of an “order-of-magnitude overvaluation bubble,” cautioning that broader stock ownership and steeper valuations mean more investors will suffer than in the dot-com crash, with suffering that will be more painful.

Conversely, investors like Ross Gerber and Kevin O’Leary say they are not worried about a bubble, arguing AI delivers measurable productivity gains and fuels rapid revenue and profit growth at companies like Nvidia.

Whether Gordon is correct that the stock market is disconnected from reality, or investors are accurately pricing in vast future returns from AI, will only become clear over time.