Will the AI bubble burst in the US in 2026?

```

Renowned economist Ruchir Sharma shares his bold predictions about when the future AI technology bubble might burst and the investment trends for 2026.

This week in an interview, economist Ruchir Sharma stated that despite the Federal Reserve's recent rate cuts, inflationary pressures remain stubborn, as the 2% target has not been met for five consecutive years, and next year's inflation rate is expected to stay close to 3%.

He emphasized that if the U.S. economy remains strong and rising inflation forces the Fed to shift to rate hikes, the current overinvestment bubble driven by AI capital expenditure would face an end.

The economist also made three major predictions for the market in 2026: The AI bubble may burst at some point, quality stocks will regain favor, and the multi-year trend of international markets outperforming the U.S. will continue.

Interest rates are the only trigger for the bubble to burst

Sharma emphasized that market confidence in AI is so strong that investors are willing to put in all kinds of capital without questioning.

However, he pointed out that doubts emerge when interest rates rise. He looked back at history and said:

Every historical bubble or mania was pierced by the same factor, that is, when interest rates eventually rise.

Sharma added that smart investors wait for this signal to appear and exit before the bubble bursts.

The current inflation situation provides a possibility for interest rates to rise. The Federal Reserve has failed for five consecutive years to achieve the 2% inflation target, and even next year the inflation rate looks closer to 3% rather than 2%. If the economy stays strong, partly driven by large-scale capital expenditure in AI, inflation might accelerate further from current levels.

Sharma expressed confusion about the Fed's rate cuts under current conditions, speculating it may be due to White House pressure, or that the Fed reacts to any sign of trouble but does nothing when things are going well.

He observed that whenever the U.S. stock market wobbles even slightly on expectations of rate hikes, the Fed sends dovish signals to soothe the market. Recently, the probability of a Fed rate cut in December has soared from below 30% to nearly 100%, a pattern that reflects such responses.

However, Sharma stressed that if inflationary pressures force the Fed to choose rate hikes or halt rate cuts, the rules of the market game will completely change.

2026 Investment Outlook: Positioning in Quality Stocks and International Markets

While warning about the AI bubble, Sharma also set out what he sees as the three major investment trends for 2026.

He said that against the backdrop of AI concept stocks appearing expensive and safe-haven assets like gold having surged sharply, investors face a dilemma: "What should we buy?"

His primary advice is "buy quality stocks". These stocks typically have high return on equity (ROE) and low leverage.

Sharma's research found that such stocks have experienced one of their worst performances on record over the past 12 months, badly lagging the market. He believes this provides an excellent buying opportunity for investors.

Secondly, he predicts the AI bubble may end in some form at some point next year, closely related to the trend of interest rates, although the precise timing is hard to predict.

Finally, Sharma believes the trend of international markets outperforming the U.S. will continue. He sees the trend that began in 2025 as not “a flash in the pan,” but the start of a multi-year cycle.

Therefore, he expects this performance to continue into 2026, offering opportunities outside the U.S. for investors seeking diversification and growth.

Risk Warning and DisclaimerThe market has risks, and investment should be made cautiously. This article does not constitute individual investment advice and does not take into account the special investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific situation. If you invest based on this, you do so at your own risk. ```