El-Erian warns the AI bubble will 'end in tears' and credit 'cockroaches' (fortune.com)

Economist Mohamed El‑Erian warned that the AI investment boom is a “rational bubble” that will produce significant individual losses — “end in tears” — and a series of credit accidents he likened to “cockroaches” (many messy failures that don’t collapse the system) rather than “termites” (systemic rot). He compared today’s label-chasing to the dot‑com era: foundational model companies are attracting outsized capital, but not all will succeed, and stretched investors may have skipped proper due diligence. While he doesn’t expect systemic collapse, he predicts clustered credit shocks as firms and households refinance debt at higher rates amid a K‑shaped economy where lower‑income consumers are already “near recession.” For the AI/ML community this underscores two technical and policy imperatives: diffusion and realistic value propositions. El‑Erian argues the U.S. lacks a comprehensive diffusion strategy (unlike China or the UAE) to move AI from models into workplace processes; without orderly adoption, aggregate productivity gains won’t materialize. He warns against treating AI primarily as a cost‑minimizer; its real leverage is labor augmentation and productivity enablement — which, if realized, could alter macro policy space. Practitioners, investors, and policymakers should therefore prepare for concentrated funding risk, prioritize deployment/implementation (not just model creation), and address labor and demand-side vulnerabilities that could amplify AI’s economic fallout.