Still a couple of years left for AI bubble before the fall: Neelkanth Mishra at CNBC-TV18 Global Leadership Summit

There are still a couple of years left for AI bubble before the fall: Neelkanth Mishra

Neelkanth Mishra Chief Economist at Axis Bank and Head of Global Research at Axis Capital believes that the global AI market is still in the middle of a bubble-building phase, with the real risk of a collapse lying a few years ahead. He said that most of the capital fueling the AI surge is still surplus cash generated by large technology companies, not credit-funded money. The danger, he noted, emerges only when leveraged capital enters the system, creating deadlines and pressure points that can trigger a sharp fall if earnings fail to keep up.

Mishra made these remarks as a part of CNBC-TV18’s Global leadership Summit. He added, “Whenever this AI bubble turns and as the US market starts to normalise from 200% market cap to GDP then no equity market would be left untouched.” But he added that the rule forward gains in earnings are now starting. “For almost three quarters, we had all the roll forward gains, which is 3-3.5 percent a quarter being offset by earnings cuts. Now, I think that GDP upgrades have started. I expect that by the end of this fiscal year, the real GDP number will be upwards of seven. The reason why there is still a lot of negative sentiment is that nominal GDP growth has been coming down,” he said.

Mishra added that he sees some earnings upgrades happening, and then roll forward gains will start coming through. “I do expect that in the next 12 months, we should see much better support for India. In fact, foreign investors have been using hedge funds have been using India as a funding short, thinking it's not going to do anything. Because they know that this market is not going anywhere, and therefore, you just sell it, you get free funds and then you invest funds on the AI theme globally, “ he explained.

So far, he noted that a large part of the capital going in is surplus capital that Google and Microsoft will always be accumulating. “Bubble formation and the risk of a collapse happens when you have a lot of credit funded. So, if Microsoft does not make enough money, the ROC falls by 2%. But if you've taken private credit and you fail, so that kind of share of capital is still low. I think there's another, maybe a couple of years of bubble formation and then it all falls,” he explained.