The AI-driven rally that has propelled US equities to record highs may be resting on increasingly fragile foundations, according to global strategist Andrew Freris, who said that excessive spending on artificial intelligence and stretched valuations could eventually trigger a broader market correction with repercussions across global markets.
Speaking to ET NOW, Freris, CEO of Ecognosis Advisory Co., pushed back against the widely held view that strong earnings and AI-led capital expenditure justify the current run-up in US equities.
“I have to disagree completely that earnings growth has been good,” Freris said. “The earnings growth of some of the most important stocks, for 2025, they had no earnings at all. They had no profits. In the first quarter, they continued to have losses.” He argued that investors have become increasingly willing to overlook current fundamentals in favour of future AI-driven expectations.
Questions over massive AI spending
A key concern for Freris is the scale of investments being announced globally under the AI theme, particularly when visibility on eventual demand remains uncertain.
He was equally sceptical about the growing AI investment race in Asia, citing South Korea’s plans for substantial spending in the sector. “Korea joined the dance with one trillion US dollars spending on artificial intelligence investments,” he said. “And, like the Americans, they haven’t told us who is going to buy the products that one trillion is going to produce.”
While acknowledging that Taiwan and South Korea have been among Asia’s strongest-performing markets, Freris suggested that their gains have also been heavily tied to the global AI boom.
“The spectacular performers were, of course, Taiwan and South Korea. But they were also at the back of a big boom of their artificial intelligence,” he said.
Prefers Asia over US, despite market momentum
Despite the strong performance of Wall Street, Freris said he continues to favour selected Asian markets over the United States. “I will still continue to stick with some of the markets in Asia,” he said. Pointing to the performance gap between global markets and the S&P 500, he argued that investors remain excessively concentrated in US equities.
“The S&P is one of the least best-performing markets in the world and still people carry on buying them. Why? Again, I have absolutely no idea,” he said. Freris maintained that he is advising clients to reduce exposure to US equities rather than increase it. “As far as United States is concerned, I remain exactly the same, telling my clients not to add and to continuously subtract their holdings of all US markets,” he said.
Among Asian markets, Freris expressed a constructive view on Japan, citing economic resilience, monetary policy credibility and higher defence spending.
“Japan has a reasonably good economy. It has quite a safe central bank, which is going to increase interest rates because they don’t like their inflation,” he said. According to Freris, a tighter monetary stance could also support the yen, which has remained under pressure. “This is likely to boost a little bit the yen,” he noted.
He also highlighted government spending priorities that extend beyond artificial intelligence. “They haven’t gone crazy on artificial intelligence. And that’s important,” Freris said. “They are also spending a lot on defence. Defence is always one of my favourite sectors.” As a result, he added, “I will add Japan on my favourites as far as Asian markets are concerned.”
India caught between stability and AI scepticism
Freris described India as a market with neither a major positive nor negative trigger at present, saying that has contributed to relatively muted performance.
“India is a market that has no good news, no bad news. And hence that is reflected in an incredibly flat overall performance,” he said. At the same time, he argued that India has been disadvantaged by investor perceptions that it lacks a dominant AI investment narrative. “Very unfairly, the Indian market has been accused of not having an artificial intelligence sector,” he said.
He suggested that India’s relative restraint on AI spending could ultimately prove beneficial. “I could actually tell you good luck to India that hasn’t joined this kind of crazy business of just spending money because it looks as if it is a good idea,” Freris said. “Unfortunately, this is not what drives the markets right now,” he added.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
