The ongoing debate about the valuation of artificial intelligence (AI) stocks has intensified as analysts weigh the sustainability of their recent surge. A consensus is emerging that, despite the excitement around AI, top tech stocks appear to be overvalued. Some experts warn of a potential market correction, while others foresee a gradual decline in momentum.
In 2025, the AI sector has significantly fueled the stock market’s growth; however, skepticism is growing among financial professionals regarding the continued acceleration of these gains. David Miller, the chief investment officer and senior portfolio manager at Catalyst Funds, expressed concern over the technology sector’s robustness, suggesting that a downturn may be on the horizon.
Speaking with Business Insider, Miller articulated his belief that the technology stocks propelling the market have reached unsustainable valuations. He is now focusing on growth opportunities outside the realms of AI and large tech companies. He posited that if economic conditions deteriorate, a correction in tech-heavy stocks is likely. The Nasdaq index, predominantly composed of technology stocks, has recently faced pressure from investors concerned about high valuations and an uncertain outlook for interest rate cuts.
Prominent companies in the AI sector, such as Palantir, Tesla, and Nvidia, have recently struggled, reinforcing Miller’s concern about the fading momentum of the AI-driven market. He pointed out that the current high levels of valuation in the tech space could lead to a rapid unwinding of enthusiasm if economic indicators continue to decline. He highlighted the market’s optimism, which heavily relies on the assumption of ongoing revenue growth and margin expansion fueled by AI spending. If corporate budgets start to tighten or interest rates stay elevated for an extended period, those assumptions could face significant challenges.
Miller cited several economic indicators that signal a weakening landscape, including declining consumer sentiment, rising unemployment, and ongoing concerns about tariffs. While overall GDP growth may seem stable, he argues that actual demand within the economy is softening.
In light of these developments, Miller is pivoting his investment strategies away from the tech sector, which appears vulnerable. He is exploring sectors that typically thrive amid slower growth or inflationary pressures. He sees gold and precious metals as attractive assets due to increasing central bank purchases, geopolitical risks, and the potential for lower real interest rates in a weakening economy.
Furthermore, if economic conditions deteriorate and the AI trade does not rebound swiftly, he anticipates sectors that serve as inflation hedges—with strong cash flow generation—could outperform. He specifically pointed to utilities, energy, and certain real estate investments as viable alternatives to the high-profile technology stocks.
Despite his cautious view on much of the tech landscape, Miller expressed optimism about certain companies, notably Uber Technologies and Mercado Libre. Both firms have demonstrated robust growth this year, with Uber up 52% and Mercado Libre gaining 20%. Miller praised their multiple growth drivers and potential for continued expansion.
In summary, Miller advocates for a balanced investment strategy that accommodates the shifting dynamics of the AI sector amid an economic slowdown. He stressed the importance of selectivity, urging investors to balance their exposure to AI stocks with investments that generate steady cash flow and perform better in an environment marked by slower growth or heightened volatility.
