Societe Generale's global chief strategist Albert Edwards believes the environment of the mid-1990s bears similarities to today's AI boom.

The strategist, who predicted the 1997 Asian financial crisis three decades ago, now points out that the financial contagion crisis that swept through Asian economies back then shares common ground with the current AI investment frenzy, which he considers to be a bubble.

Edwards, based in Societe Generale's London office and self-described as a "super bear," was prompted to make this comparison by a research report published by Apollo Global Management chief economist Torsten Slok.

Slok pointed out that Total Factor Productivity (TFP), an economic indicator, has been weak. TFP measures how much output an economy can generate given a certain amount of labor and capital input.

Slok's explanation of this indicator: "After stripping out all the growth brought by increased labor hours and new equipment investment, the remaining growth is Total Factor Productivity. When companies can expand output without increasing production factor inputs, TFP rises, making it the best proxy for measuring technological progress."

After carefully examining the data, Slok concluded that although the AI boom has already been reflected in investment data and stock valuations, it has not yet shown up in productivity statistics. In other words, "the productivity dividend from AI is still only a forecast, not an observed fact."

This set of views struck a chord with Edwards, as it was also the core logic behind his bearish stance on Asia in the mid-1990s. Back then, he read an article by Nobel laureate economist Paul Krugman, which pointed out that sluggish Total Factor Productivity undermined the widely accepted optimistic narrative about Asian economies at the time. At that time, numerous publications were praising Asia's economic "miracle."

Edwards concluded from this: "Too many people readily believed this alluring narrative," and the end result was "a massive influx of cheap and abundant capital into these economies, which led to capital misallocation."

Edwards believes the Asian financial contagion crisis that later erupted was "entirely predictable," just like the U.S. dot-com bubble of the late 1990s. Therefore, he is skeptical of the mainstream market view that the current AI boom is not a bubble.

Edwards acknowledges that the AI dividend not yet appearing in TFP data may simply be because it is still early. But he also cites research findings from another economist, Rob Parenteau. Parenteau, who previously worked at Allianz, found that although total corporate investment has been rising rapidly, net corporate investment has remained essentially flat.

Edwards argues that if U.S. corporate investment is only rising significantly in nominal terms while real investment has not grown notably, then his skepticism about the AI rally stands on solid ground. The State Street Technology Select Sector SPDR ETF has already surged 40% this year, while the semiconductor ETF has nearly doubled.