ETMarkets Smart Talk | AI is real, but AI valuations are not; we are in the FOMO stage of the bubble: Carnelian’s Manoj Bahety

Manoj Bahety, Founder and Fund Manager at Carnelian Asset Management & Advisors, has issued a stark warning against the 'FOMO stage' of the Artificial Intelligence (AI) market, asserting that while the technology itself is transformative, its current valuations are dramatically inflated, reminiscent of past market bubbles. This caution comes amidst a turbulent June 2026, where AI chip stocks experienced a significant 10% plunge in the Philadelphia Semiconductor Index before a rapid, though precarious, recovery, highlighting extreme volatility. The current AI frenzy, marked by soaring private valuations for companies like OpenAI (reaching $852 billion in March 2026) and Anthropic (valued at $965 billion in June 2026), and the high-profile IPO of SpaceX at $2.1 trillion, signals an era where hypergrowth expectations often outstrip proven profitability. Even as hyperscalers commit massive capital expenditures—estimated at $750 billion for 2026—Goldman Sachs warns of increasingly crowded trades and the rising risk of volatility in AI infrastructure stocks. Bahety pivots this narrative to India, advocating for a strategic focus on resilient domestic sectors: manufacturing, financials, and consumption, which are currently underpinned by robust growth drivers and policy support. India's manufacturing is projected to grow at a 7.5% CAGR by 2030, propelled by digital innovation and the Production Linked Incentive (PLI) scheme. The financial sector saw 14% growth in FY25, with expectations of 11.5%-12.5% credit growth for fiscal 2026-27, buoyed by GST cuts and interest rate easing. Meanwhile, India's consumption story is shifting towards premiumization, with strong urban demand and favorable macroeconomic conditions driving spending. As the global AI market continues its high-stakes dance between revolutionary potential and speculative excess, investors will be closely watching for signs of sustained profitability from AI giants, particularly as major IPOs continue to test market appetite. In India, the divergence from global tech-driven euphoria towards foundational domestic growth sectors suggests a more grounded, long-term wealth creation strategy. The continued performance of manufacturing, financials, and consumption, bolstered by government reforms and evolving consumer preferences, will serve as a critical barometer for investors seeking stability amidst global market uncertainty. Future economic surveys and corporate earnings reports will reveal whether India's traditional sectors can indeed offer the safe harbor Bahety envisions against the looming shadow of an AI bubble.