Rapidly rising AI stocks may be ‘rational bubble’: Nobel laureate economist

​​​​​​​​​​​​​​By Nuran Erkul and Emir Yildirim

DAVOS, Switzerland (AA) - The recent surge in artificial intelligence (AI) stocks could be a “rational bubble,” as Nobel laureate Peter Howitt told Anadolu that some firms will be triumphant like “Amazon came out of the dotcom bubble.”

Howitt, speaking on the sidelines of the 56th annual World Economic Forum (WEF) held in Davos, Switzerland, stated that Europe should find ways to focus more on cutting-edge innovation, as the continent lacks large-scale and groundbreaking innovation despite success.

“I think that requires perhaps a more flexible financial system than they currently have,” said the economics professor at Brown University. “One of the wonders of the US economy is their venture capital system is unrivaled in the world, (and) I think that Europe has the potential to do that, but it's going to require cooperation -- that’s always difficult in Europe.”

He added that some US companies decided to come to Europe, which is an important opportunity to boost innovation in the region.

- AI’s ‘rational bubble’

The dotcom bubble refers to the rapid rise of tech and internet stocks in the late 1990s and the sharp crash in 2000 -2001. Howitt stated that the recent AI stock surges can be called a “rational bubble.”

“There is a fundamental basis there -- it’s not as if it’s not like the tulip bulb craze or something, there’s something real there,” he said. “There is going to be some company that ends up being what Amazon became out of the dotcom bubble.”

Howitt noted that Amazon was not earning profits but it was “ridiculous that it was valued so much” despite it all, noting that investors during the dotcom bubble “have made a fortune.”

“There’ll be some company that emerges from this as well, but we’re engaged in a shakeout period, so, there are a lot of companies that are contesting this,” he noted. “There will be winners, there will be losers, and at some point, when it becomes a little clearer who the winners are going to be, the values of the other firms are going to start to fall, and that’s when the crash will take place.”

Howitt won the 2025 Nobel Prize in economics for his work alongside French economist Philippe Aghion for the “Aghion–Howitt model,” a theory of sustainable growth via creative destruction.