El-Erian Says Stock Market Is ‘Overdoing It’ On AI Fears As Nasdaq Enters Correction Territory

The economist compared the AI debate with globalization, saying the failure to address how its benefits and costs were distributed helped fuel a backlash against global trade.

• In an interview with CNBC, Mohamed El-Erian stated that the U.S. economy is “really levered” on AI right now.
• According to him, this leaves the market vulnerable to a broader downturn if the technology sector sells off sharply.
• He expects the Fed to raise rates at least once more, but does not see the three hikes currently priced in by markets materializing.

Mohamed El-Erian, chief economic adviser at Allianz, said on Thursday that the growing public backlash against artificial intelligence is a warning the U.S. should heed, but that investors are overreacting to it.

“I think we’re getting a warning, a timely warning, not to repeat the mistake of globalization,” El-Erian told CNBC. “The ‘let it rip’ policy leaves lots of people behind, and this is a reminder that we have to do this in a more thoughtful manner.”

Investors are waiting to see how AI and data center build-out will shape up after this week’s midterm elections, which handed Democrats control of both chambers of Congress. 

After Wednesday’s rally, the markets were seeing a sharp correction in midday trade on Thursday. The Nasdaq plummeted 4.2% in midday trading, putting it on track for its worst session since April 2025 and pushing it more than 10% below the record it reached last month. The S&P 500 declined over 3%, while the Dow Jones Industrial Average dropped 1,153 points.

ETFs tracking the major U.S. stock indexes, the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ), were among the top-trending tickers on Stocktwits at the time of writing. Retail sentiment around both remained in ‘bearish’ territory over the past day, accompanied by ‘high’ levels of chatter.

El-Erian Sees AI Backlash, But Says Investors Are Overreacting

According to El-Erian, the market’s reaction to the political and public backlash has gone too far. “I think the market is overdoing it,” he said. “I think fundamentally we’re going to get smarter adoption of AI rather than no adoption of AI.”

However, he added that the backlash was not surprising, noting that the industry had not done enough to explain how AI could affect people’s jobs and daily lives, leaving the public to focus on the technology's risks.

El-Erian compared the situation with globalization. “The globalization theme was a good one, but we didn’t pay attention to the distribution effects, and we got a massive backlash that has derailed globalization,” he said. “We do not want to derail AI for economic reasons and for national security reasons.”

Despite his concerns about the industry’s approach, El-Erian said he remains “completely bullish” on AI’s potential to benefit the economy.

A Tech Selloff Could Spill Into The Wider Economy

El-Erian stated that the sharp decline in AI-related stocks could have consequences beyond the technology sector because the broader U.S. economy has become increasingly dependent on AI investment and the wealth generated by rising technology shares. “We are really levered on AI right now,” he said.

He added that AI spending and gains in technology stocks have supported economic growth, productivity and the labor market. “These are good numbers because tech has acted as a shield to deflect all sorts of other things,” El-Erian stated.

According to him, the market’s dependence on the technology sector could make it harder for investors to avoid the fallout from a correction simply by shifting money into other sectors. El-Erian said the strategy, “assumes that there’ll be no spillover from the market to the economy. ”

Nasdaq Enters Correction Territory

AI bellwether Nvidia (NVDA) was also among the top-trending tickers on Stocktwits, alongside Micron (MU), SanDisk (SNDK), Advanced Micro Devices (AMD), Iren (IREN), Nebius (NBIS), and the Direxion Daily Semiconductor Bull 3X Shares (SOXL).

NVDA stock fell more than 7%, touching levels last seen in April. SNDK stock dropped more than 17%, while NBIS shares slid 16.7%, also hitting April lows. 

MU stock and AMD declined more than 13% and 15%, respectively. Both hit lows last seen in May. Meanwhile, IREN stock fell 16%, touching its lowest level since August 2025. Shares of fellow neocloud CoreWeave (CRWV) fell over 12%.

SOXL shares plunged more than 30%, putting the leveraged semiconductor ETF on track for its biggest one-day decline since April 2025, matching the Nasdaq’s slide. On Stocktwits, retail sentiment around the ETF shifted to ‘extremely bullish’ from ‘bullish’ territory over the past day. 

El-Erian Sees Treasury Yields Near 5%, Expects Fewer Rate Hikes

El-Erian expects the 10-year Treasury yield to remain around 5% unless the U.S. economy enters a recession.

He pointed to persistent federal budget deficits and weaker demand from some traditional overseas buyers of U.S. government debt, including China, Japan, South Korea, Norway and countries in the Gulf region. “The reliable buyers of U.S. Treasuries are less reliable,” he said.

El-Erian also expects the Federal Reserve to raise interest rates at least once more, but does not anticipate as many increases as markets are pricing in. “I don’t think we get the three hikes that are priced in,” he said.

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