Financial history is defined by cycles of boom and bust, and we have officially entered the “bust” phase of the AI cycle. The defining word of this era is “irrationality,” a term used by Google CEO Sundar Pichai to describe the current market fervor. This echoes the “irrational exuberance” of the Dot-Com era, suggesting that the market has once again lost its tether to reality.
The symptoms of this irrationality are everywhere. Bitcoin soared to unsustainable heights only to crash 27% to $91,212. Companies like Nvidia reached market caps exceeding the GDP of major nations, prompting Klarna’s CEO to publicly “disagree” with the valuations. The $1 trillion wiped off the crypto market is the first bill coming due for this period of excess.
Now, the hangover sets in. The FTSE 100 is down, Asian markets are tumbling, and fear is the dominant emotion. The “correction” predicted by JP Morgan is simply the market trying to find a rational price level after a year of madness.
However, finding that floor is a painful process. It involves wealth destruction, panic selling, and a shift in psychology. The Bank of America survey showing 45% of managers fear an AI bubble indicates that the professionals are already preparing for the worst.
The lesson of the “Irrational Era” is that markets can remain wrong for a long time, but they eventually correct. We are living through that correction right now.