Albert Edwards, the Societe Generale strategist who accurately predicted the Asian financial crisis nearly three decades ago, has recently issued a warning regarding the global artificial intelligence investment boom. The analyst, known for his bearish market outlook, believes that the current capital frenzy surrounding AI bears striking similarities to the market environment that triggered the Asian financial crisis, suggesting that the current prosperity is highly likely just a massive bubble.

Edwards' logic is largely based on a set of key data recently disclosed by Torsten Slok, Chief Economist at Apollo Global Management. Slok focused on total factor productivity, a core metric for measuring technological progress. This indicator strips out the effects of increased labor and capital inputs to specifically reflect a firm's ability to increase output without adding extra inputs. Although the AI concept has significantly driven up the valuations of related companies and attracted massive investments, macroeconomic data shows that the technology's actual impact on productivity remains negligible. The productivity dividend expected by the market is still stuck in the expectation stage and has not translated into tangible economic output.

This severe disconnect between data and expectations reminds Edwards of his experiences in the mid-1990s. At that time, Nobel laureate Paul Krugman also pointed out the sluggish total factor productivity in Asian economies, which clashed with the prevailing narrative of economic miracles in the market. Swept up in collective optimism, a massive amount of cheap capital was misallocated, ultimately leading to the widespread financial crisis. Edwards points out that the market's blind faith in the Asian economic story back then is identical to investors' current firm belief that AI will change the world; both ignore the fundamental data underpinning the narratives.

In addition to the lack of improvement in productivity, the actual quality of corporate investment is also questionable. Citing research by economist Rob Parenteau, Edwards notes that while total investment by U.S. companies in areas such as equipment and buildings appears to be rising rapidly, net investment after deducting depreciation has essentially stagnated. This means that a large portion of the increasing capital expenditures on corporate books is merely to maintain the operation of existing assets, and the new capital truly used for expansion is not as impressive as the nominal figures suggest. If the AI-driven investment growth is merely reflected in the inflation of nominal amounts, the sustainability of this boom must be called into question.

Contrasting with the cautious attitude of economists is the relentless bullish enthusiasm in the financial markets. So far this year, the State Street Technology Sector SPDR ETF, which tracks the U.S. tech sector, has accumulated a gain of 40%, while the SOXX ETF, representing the semiconductor industry, has surged by nearly 100%, with its market value almost doubling. Faced with such astonishing surges in the tech and chip sectors, the market is pricing in extremely high growth expectations. When funds rush in frantically based on a firm belief in the disruptive transformation brought by a certain technology, whether these massive investments can ultimately be realized as genuine productivity leaps remains an unknown hanging over the market.