Nassim Taleb is waving a red flag for investors. The author of The Black Swan warns that the AI market rally is getting shaky and investors should brace for a spike in volatility and potential bankruptcies across the software sector.
According to Taleb, markets are underestimating deep structural risks while overestimating how long today’s AI leaders will stay on top. While AI promises huge profits, history shows that early pioneers are often replaced.
“Someone will make a lot of money in AI,” Taleb said in an interview at the sidelines of a SeaFair event hosted by Universa Investments in Miami. “It’s not guaranteed to be the companies that make up the AI trade today.” He added that bankruptcies in parts of the software sector are likely as technological changes, tough competition, and shifting geopolitics reshape the industry, according to a report by Bloomberg.
Market sell-offs add to investor anxiety
The S&P 500 Index dropped about 1% on Monday, continuing a series of sell-offs as investors worry about tariffs and conflicting views on AI. On one hand, fast-developing AI tools could disrupt software companies that rely on subscriptions, as coding becomes easier. On the other hand, big tech companies building AI infrastructure have borrowed heavily, a risky move that may take years to pay off, the report mentioned.
Taleb, known for predicting past financial crises, noted that much of the recent stock rally was driven by a small group of AI-focused companies, leaving broader indexes vulnerable if leadership changes. “Tail-risk across sectors is structurally underpriced. The risk is not a small correction. It’s a large drawdown,” the news outlet quoted him as saying.
Still, Taleb believes the market rally could continue in the short term. The bigger concern, he said, is how large the potential losses could be.
“You always need hedges. These drawdowns are not easily predictable,” Taleb said.
Gold gains as dollar concerns grow
Taleb highlighted major shifts in the markets, especially in gold. While stocks have been moving up and down due to concerns about AI sustainability and global tensions, gold has risen roughly 30% since October.
He pointed to ongoing US deficits and worries about the dollar being used as a weapon through sanctions. “The US is progressively losing its status as a reserve currency at the margin. If there’s a perception that assets can be frozen or confiscated, that reduces the incentive to store wealth in dollars.”