El-Erian Says AI Is Like Electricity, Warns There Are Some Names That Will ‘End Up In Tears’: Report

• During an interview with CNBC, El-Erian explained that there are some AI stocks that have “reasonable” valuations, but added that there is some froth in the sector.
• El-Erian added that he thinks we are in a “rational bubble” at the moment, since companies have the incentive to over-invest in AI because the payoff is huge.
• The economist’s comments come at a time when AI bellwether Nvidia became the first company in the world to cross the $5 trillion valuation milestone.

Mohamed El-Erian, Chief Economic Advisor at Allianz, on Wednesday reportedly compared artificial intelligence technology (AI) to electricity, while explaining the booming valuations in the sector.

During an interview with CNBC, El-Erian explained that there are some AI stocks that have “reasonable” valuations, but added that there is some froth in the sector.

“Whether you have electricity or not, [it] is a huge difference. So for me, it makes total sense. What I worry about, is within AI, there are some names that [have] reasonable valuations, but that has pulled other names that I think will end up in tears.”

— Mohamed El-Erian, Chief Economic Advisor, Allianz

Rational Bubble

El-Erian added that he thinks we are in a “rational bubble” at the moment, since companies have the incentive to over-invest in AI because the payoff is huge. “But you’re going to have a relatively limited number of winners,” he said.

“I think AI is a major transformational general purpose knowledge. It’s like electricity, it’s going to change so much of what we do. And it will matter greatly,” El-Erian said.

He added that there will be some losers in the AI space, but said this is still a better system than the one in China, where the government says what should be done. He thinks this system will also have better outcomes because of the competition.

Soaring Valuations

El-Erian’s comments come at a time when AI bellwether Nvidia Corp. (NVDA) became the first company in the world to cross the $5 trillion valuation milestone. On Tuesday, Microsoft Corp. (MSFT) and Apple Inc. (AAPL) scaled the $4 trillion valuation mark.

In the unlisted space, OpenAI’s valuation is currently at $500 billion, after a new deal between Microsoft and the ChatGPT maker that was announced on Tuesday.

Meanwhile, U.S. equities rose in Wednesday’s midday trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.2%, the Invesco QQQ Trust ETF (QQQ) gained 0.45%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.47%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘neutral’ territory.

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