Is AI euphoria an overlooked risk for markets beyond geopolitical shocks

AI stocks have been hogging the limelight for over a year now. Some artificial intelligence (AI) exchange-traded funds (ETFs) have surged over 100% over the last year, while stocks such as Micron Technology have soared nearly 900% since last year. Shares of chipmaker Intel Corporation have surged 565%, while those of NVIDIA have gained 45% in the last year.

This AI boom has driven tech-heavy Nasdaq 12% higher this year so far, while Korea's Kospi has soared more than 90% year-to-date.

Taiwan's share market has surged over 100% in the past year, as the country, as per reports, is the biggest producer of the chips that power AI technology.

There is little doubt that artificial intelligence (AI) will transform virtually every sector of the economy, giving it a long runway for growth. However, that does not mean investors' enthusiasm for the technology cannot prove misplaced.

While the opportunity is real, experts warn that the AI trade may be running ahead of fundamentals, with parts of the market pricing in a near-perfect future.

Stock markets are never short of risks. At this juncture, investors may be more focused on major macroeconomic risks such as the Middle East conflict and crude oil price volatility, both of which could weigh on global economic growth, trigger tighter monetary policy, and usher in a prolonged period of market consolidation.

However, beyond these traditional risks of geopolitical tensions, trade disputes, and oil-price shocks, investors may be underestimating a major risk of excessive optimism about AI.

Many experts find it difficult to answer this question in black and white. For some, the sector is too hot to sustain its gains, while several others say AI remains a long-term bet since the scope of its growth remains vast.

"AI is likely to be one of the defining technologies of this century. The question is not whether AI will create value. It will. The real question is whether investors are paying a reasonable price for that future. Great technologies create opportunities. Disciplined investing determines who benefits from them," said Shruti Jain, Chief Strategy Officer, Arihant Capital Markets.

For investors, the current AI trade requires a shift from speculative hype to fundamental valuation.

As per Ravi Singh, Chief Research Officer at Master Capital Services, much of the initial market surge was driven by narrative and multiple expansion, rather than immediate cash flows. The risk lies in overlooking the high capital expenditure, chip shortages, and lengthy monetisation timelines that companies face.

Nirali Bhansali, an equity fund manager at SAMCO Mutual Fund, pointed out that the key risk today is not that AI will fail, but that valuations of some AI‑linked companies have raced ahead of earnings visibility.

According to Bhansali, any slowdown in AI spending, monetisation challenges, regulatory hurdles, or weaker‑than‑expected returns on vast infrastructure investments could spark corrections.

Bhansali suggests investors should avoid treating AI as a single thematic trade.

"Prioritise businesses with durable competitive advantages, predictable cash flows, and clear pathways to monetise AI rather than companies benefiting only from narrative-driven re-ratings. The next phase of the AI cycle will likely reward execution over excitement. Keep exposure to high‑quality AI beneficiaries, but limit concentration risk and valuation excesses," said Bhansali.