May 31, 2026
AI has exploded into the predominant engine behind America’s GDP growth and the stock market’s celebrated rally in 2026, but while some investment pundits continue to endorse chip makers and hyperscalers, others are warning of the collapse they believe will inevitably follow such speculative conditions.
JPMorgan Chase CEO Jamie Dimon, “Mad Money” host Jim Cramer, “The Big Short” inspiration Michael Burry and others have been comparing the high spirits of recent months to those felt just before the dot-com bubble burst and plunged the world into a paralyzing (albeit short-lived) recession at the turn of the millennium.
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We can add to this list of admonishers the seasoned investment strategist Jim Paulsen, who has recently called attention to an unsettling trend he’s noticed in the S&P 500.
“Extreme” bifurcation between new and old era stocks
Paulsen, who spent decades as chief investment strategist for the Leuthold Group, now, like Burry, dispenses financial counsel largely via a Substack and associated newsletter that thousands look to for economic guidance. His last few posts center on an “extreme” bifurcation of the market that doesn’t bode well for AI enthusiasts.
As Paulsen explains, what keeps such historic stock market highs grounded is the “old era” stocks such as banking, manufacturing and the like, which tend to trend in the same direction as the shiny new tech stocks responsible for the rise.
But, what we’re seeing now is the opposite: AI shares “racing ahead almost in isolation,” which he suggests is an almost guaranteed hallmark of trouble.
“For the last 30 years, the correlation of daily price movements between new era and old era stocks during the last year has proved to be a good risk indicator for new era investors,” Paulsen wrote earlier this month.
“The most recent rally in new era stocks since March 30 has been explosive, causing a breakout of optimism among investors that AI excitement is leading the stock market on another significant leg higher. However, this latest rally has been associated with an alarming drop in the trailing 12-month new/old era stock price correlation, suggesting the contemporary rally may not be sustainable.”
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As Paulsen shows, the last few times this pattern has shown itself, there was a subsequent downturn of the stocks that had been serving as the primary drivers of the runaway market success — a “notable pause,” if not some “meaningful underperformance.”
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Bifurcation isn’t new — but it’s reached a drastic level
Though this bifurcation started back in 2022 — when the contemporary bull market germinated — the imbalance has been getting remarkably more pronounced over time. Even if the reasoning behind why some in one category are besting some in the other is sound, Paulsen questions “how sustainable a bull market is where most companies are essentially failing.”
In mid-May, 5% of the components of the S&P sank to 52-week lows while the overall index was at a record high — only the fourth time in recorded history that such a phenomenon has taken place. And over the last two months, new era AI stocks have performed, on average, nearly seven times better than the rest of the index (up 36.2% vs. 5.3%).
Even more worrying is that some of the forerunners are pulling ahead of even Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) and the rest of the almighty Magnificent 7 despite never having actually turned a profit. (Others, meanwhile, have notoriously overinflated valuations and earnings.)
Your own portfolio comes down to risk tolerance
Joining the AI party can indeed precipitate some big wins, but it also carries a lot of risk. Experts like Burry have called out the sector’s “supply-side gluttony” via “catastrophically overbuilt” infrastructure that is being scaled largely in response to hype rather than paying end-user demand.
As he wrote on his own Substack earlier in May, “stocks are not up or down because of jobs or consumer sentiment. They are going straight up because they have been going straight up [based] on a two-letter thesis (AI) that everyone thinks they understand.”
Whether you want to credit AI for kicking off a new industrial revolution or you expect the obsession to eventually ebb from its present heyday, there’s no denying that the tech’s impacts on nearly all facets of daily life have been monumental, indelible, and above all, unprecedented — up to and including its hold on the stock market. But, how much true faith you have in AI’s future and the degree to which you want to put your money where your mouth is, is up to you. But don’t say the Burrys and Paulsens didn’t warn you.
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Becky Robertson is a senior staff reporter with Moneywise and a lifelong writer. Along with years in the journalism industry at outlets such as blogTO and Quill & Quire, she's participated in writing residencies at the Banff Centre and Writing Workshops Paris. With 33 countries visited, she finds travel to be one of her greatest inspirations.
