（原标题：Exclusive: Be Cautious about Current AI Valuation But Not a Bubble: DWS Global Head of Research）
By Harry Wu, 21st Century Business Herald, SFC
In 1987, Nobel Prize Laureate Robert Solow famously said: “You can see the computer age everywhere, except in productivity statistics. ” This observation, known as “Solow’s paradox”, highlighted the discrepancy between the explosion of investment in information technology and the absence of significant productivity gains in the economic data of the time.
History doesn’t simply repeat itself, but it often rhymes – and this time, AI is the protagonist. Nearly 40 years after Solow’s article, people concern about AI bubble linger.
Johannes Mueller, Global Head of Research at DWS Group, told 21st Century Business Herald in an exclusive interview at the 2025 Bund Summit that technological revolutions are often underestimated in the long term and overestimated in the short term. "At present, we may be slightly overestimating the benefits of AI. In the long run, given changes in labor markets and demographic structures, AI will be beneficial to the global economy," he said.
SFC: AI is a major force driving the frenzy in global stock markets. Do you view the current AI boom as akin to the dot-com bubble of the late 1990s, or the beginning of a truly more disruptive revolution?
Mueller: I see AI as a technological revolution. However, there’s what is called “Amara’s law”: technological revolutions tend to be underestimated in the long run and overestimated in the short term. I think we may be slightly overestimating the benefits of AI right now. In the long term, given labour market and demographic changes, AI will be beneficial to the global economy. We hope the AI revolution can offset the impact of demographic shifts in the labour market. But the key question is: what economic benefits will this new technology deliver? Are those massive investments worth it?
Can AI boost global productivity enough to justify trillion-US dollar investments? That’s the key question. I see some parallels with the dot-com bubble, but there are also important differences. Many large companies are generating massive cash flows and substantial profits, which is a bit different from the dot-com bubble scenario. The critical question remains: how truly useful will next generation AI be? Can it fundamentally transform the way we work, how businesses operate, consumer lifestyles, and daily household activities? These questions will determine whether it's a bubble. I'm cautious about current market valuations. However, I believe AI's long-term benefits may be underestimated.
SFC: Yes, AI’s impact involves a lag effect, and we still can’t determine when it will have a major impact on the economy and markets.
Mueller: I'm old enough to have witnessed a couple of technological revolutions. The 1980s brought the PC revolution, the 1990s the internet revolution, and the early 2000s and 2010s the mobile revolution. The takeaway is that technology does change how society works and boosts economic efficiency and productivity, but it takes time. When you remember the big winners in the 1980s, the perception was that IBM would dominate the industry forever, but that didn’t happen. In the 1990s, internet pioneers like Yahoo and AOL also haven’t been the long-term winners. With the mobile revolution, it was about Nokia and Ericsson also haven't been the long-term beneficiaries. So, we'll find out this time who will be the ultimate beneficiary.
SFC: Beyond the “Magnificent Seven”, which sectors do you believe are most likely to benefit from the next wave of AI? What opportunities with greater growth potential are investors overlooking?
Mueller: The next major question is: who will apply these new technologies most efficiently—and thus most profitably? Typically, the first to benefit are the so-called "toolmaking" industries. But in the second wave, technologies like AI must generate economic returns. The question is which industries will benefit most from applying technology to boost productivity and ultimately achieve economic gains. AI might help pharmaceutical companies produce new vaccines and drugs more easily and quickly and bring them to market faster—that's one application.
SFC: Some studies suggest that excluding AI’s impact, the US economy would be in recession already. This seems like a risk. If a recession does occur, how do you view this risk and its impact on markets?
Mueller: Multiple major central banks aggressively tightened monetary policy. The Fed, Bank of England, Bank of Canada, ECB, RBA, and others sharply raised interest rates. Textbooks tell us that when this happens, the economy weakens, demand softens, and inflation falls. Almost all economies reacted exactly as textbooks predicted—the Eurozone, UK, Canada, and others weakened sharply as expected—while the US economy maintained relatively robust growth: 2.9% in 2023 and 2.8% in 2024.
Our analysis revealed two reasons for the US economy's strong performance. First, fiscal policy. Put simply, while the Fed hit the brakes, fiscal policy stepped on the gas. This created some side effects, like a budget deficit approaching 7%. That's the first reason. The second was a substantial surge in immigration. Immigration also supported the economy's supply side, which in turn boosted demand—these immigrants are working and spending. That's the second factor.
But now, further fiscal expansion is very difficult. On immigration, the current US administration is clearly not keen on increasing immigration and even wants to reduce it. These two factors together are causing the US economy to normalize—it's weakening significantly. We currently put the odds of a recession at around 30%.
SFC: The markets is concerned about the Fed getting a new chair next year. What are your expectations for the new Fed chair and the impact on markets? What effects would a dovish stance from the new chair have on markets?
Mueller: Very important and very crucial question. I will be reluctant to speculate about names, but what ultimately counts is the Fed's reaction function. If giving them a set of data, how will the Fed assess it? What will the resulting policy rate adjustment be? Our assumption is that while market volatility will likely be relatively high, the Fed's reaction function won't change substantively—it will continue to make decisions based on the data.
SFC: The dollar's hegemony is sustained by three pillars: an independent Fed, an open global trading system, and a solid network of geopolitical alliances. How do you view the challenges facing these three pillars? What would be the long-term impact on the position of US capital markets?
Mueller: Many people are talking about "de-dollarization" of the global economy. I think that term is somewhat exaggerated—it's more about diversification. The world is becoming increasingly multipolar, which means there's a diversification trend away from US dollar dependence in areas like reserve currencies and safe assets. Gold prices are evidence of this diversification trend. This is likely not just a trend for this year, but a long-term one.
SFC: With the US politically polarized, pushing through any substantive fiscal consolidation is nearly impossible—both parties are more inclined to spend money to please voters. How do you see this political infighting affecting the debt problem in the long run? Has ballooning government debt become the deadliest "gray rhino" for America's long-term growth and asset prices?
Mueller: US fiscal policy will be a major issue in the coming years and even decades. Rating agencies, for instance, already factor political decision-making processes into their assessment of a country's credit quality. To put it bluntly, the current situation in Washington is anything but helpful. The numbers alone tell the story: US debt levels have surpassed 100% of GDP, whether or not count Treasuries held by the Fed, and the budget deficit stands at 6% to 7% of GDP. This is clearly unsustainable.
Action is therefore necessary, and there are several ways forward. Practically speaking, it comes down to either cutting spending or raising taxes. This doesn't have to trigger a crisis. But if nothing is done, financial markets will eventually start showing signs of stress. When that happens, it will likely mark the beginning of decisive fiscal consolidation in the US.
SFC: Against this backdrop of diversification, do you think the future global reserve currency system is more likely to evolve toward a multipolar arrangement where multiple currencies operate in parallel, or will we see the emergence of an entirely new, supranational anchor? During this prolonged restructuring, what are the most critical asset allocation adjustments that long-term capital—such as sovereign wealth funds and pension funds—needs to undertake?
Mueller: Trade wars have two main effects. First, they shift the global economy's supply curve leftward. That means lower production efficiency, increased demand for warehousing, rising inventories, and higher production load, which together drive overcapacity across countries. All of this reduces global productivity. Technically, a leftward supply curve shift creates a new equilibrium: output falls, prices rise, inflationary pressure builds, and economic growth slows.
Second, trade wars make it easier for investors to diversify. Aside from the rapid development of global communications technology, globalization itself is also a factor driving business cycle synchronization. Synchronized business cycles also mean greater synchronization of capital markets. If we enter a period of lower globalization, the synchronization of business cycles across countries would likely decline, and financial market correlations should also fall. This could be very attractive for multi-asset investors, who are always seeking diversification. The lower the correlation, the easier it is to find diversification opportunities in the markets.
SFC: With Warren Buffett currently sitting on a massive cash hoard, his actions are often viewed as a market barometer. How do you interpret his caution in light of the US stock market continuously hitting new highs? Where might the trigger point for the next market crisis lie?
Mueller: I'm not expecting a market crisis, but I am somewhat uneasy about current valuations and market concentration. A handful of stocks now account for one-third of the US market. The market has already priced in a lot of good news and expects everything to be perfect. We'll have to wait and see if the future will be as perfect as the market expects.
Mueller: First, we're still a little bit reluctant to talk about the "bubble," because a bubble usually requires a significant misallocation of resources. When we look at the massive data center investments, maybe it could make the case. Another characteristic of a bubble is that it usually feeds into the financial system by a big wave of defaults, like we have seen before the US housing crisis erupted, which then led to the financial crisis that there is a lot of debt involved, with the market questioning who would ultimately bear the losses and who held the credit risk, etc. For now, I would be reluctant to call this a "bubble" already from this perspective. The more difficult scenario is the need to be vigilant about different crises erupting simultaneously in the future.
SFC: The surge in gold prices in 2025 stands in stark contrast to the weakening of the US dollar, with some institutions even forecasting a gold price of USD 6,000. To what extent do you believe this surge in gold prices is driven by the "sovereign risk premium" posed by global central banks' "de-dollarization"? How do you view the repricing of the US dollar and gold?
Mueller: We had a model that primarily relied on real US Treasury yields to explain and predict gold prices. It worked well for decades—lower yields meant higher gold prices. But that model broke down completely in March 2022. What happened? The Russia-Ukraine conflict erupted, and Russian foreign exchange reserves have been confiscated. Since then, real yields have risen significantly due to soaring inflation and central bank rate hikes. In theory, that should weaken the gold price. Strictly following the model, gold should be around USD 1,000, or even lower. Instead, gold has been on a near-continuous uptrend since then. This year, we saw gold consolidates for months, then rallied sharply again—though this latest move may have gotten a bit ahead of itself. So, I wouldn't be surprised if we enter a consolidation phase now, but I believe gold will continue climbing over time. When the old relationship is completely broken, coming up with price targets becomes inherently difficult. Every quarter, we try to be bullish on gold, and every quarter, gold keeps surpassing our expectations. But we remain fundamentally bullish and will continue to hold that view. We could see the next leg up next year.
SFC: For investors, what's a reasonable allocation to gold in an investment portfolio?
Mueller: It depends on the risk profile of the portfolio. Clearly, central banks outside the West are reducing their US dollar dependence and diversifying into other assets. Gold is obviously one of them, and this trend will likely continue. For individual investors, a 10% to 15% allocation to gold might be sufficient. But when managing foreign exchange reserve portfolios, one might need to consider a higher gold allocation.
SFC: This year, Chinese assets have seen a revaluation, with A-shares and Hong Kong stocks delivering impressive performance. The technology sector has been particularly outstanding. How do you view this "innovation-driven bull market" in Chinese assets? Which specific opportunities are you bullish on?
Mueller: I want to explore what triggered China's stock market rally, particularly the tech bull run.
On one hand, global investors had been heavily betting on the US market, ignoring China, Europe, and others. But now, the weighting of US stocks in global indices has become uncomfortably high, US market concentration is equally worrisome, and valuations are quite elevated. Investors are starting to look for alternatives to the US market.
On the other hand, the valuation of the Chinese stock market has remained at a relatively low level compared to historical averages. Then we saw Chinese government bond yields decline, which obviously made equities more attractive. The "DeepSeek moment" has made people realise that China also has a very active and creative technology sector. These factors have driven the revaluation of Chinese assets and their outperformance. If Chinese corporate earnings improve going forward, I'm pretty optimistic that China market will continue to perform nicely.
SFC: Global capital is shifting, with Chinese and European assets gaining greater favor. Is this a short-term fluctuation in market sentiment, or does it signal a fundamental shift in the decades-old paradigm?
Mueller: First, I don’t think that it’s about getting out of the US immediately and entirely, the US corporate sector is the benchmark when it comes to profitability, innovation, tech sector and so on, and good reason to have a certain allocation to the US.
But on the other hand, the US stock market is accounting for 70% of the Global Index of the MSCI World, it is a little bit too much. Same when it comes to the bond market and same when it comes to the allocation of currency reserves. The starting point for more diversification away from the US has been seen. It would expect more of a gradual process over the next couple of years: diversify more away from the US, and to diversify more into the Chinese market, but also the European market and some other markets.
SFC: European stock markets, particularly European blue chip indices, have long traded at a significant valuation discount compared to US stocks. Traditional explanations often attribute this to the overweight of old economy. Against the backdrop of the global fragmentation and Europe's push for strategic autonomy, should we reexamine this logic?
Mueller: First, the observation that European stocks have long traded at a significant discount is correct. If I put myself in the shoes of a global investor searching for direction over the past decade, I'd think about what I would have seen: ten years of stagnating European corporate earnings while US earnings grew consistently. In fixed income, US bond yields were higher than European yields, making the US market more attractive. The euro crisis once made people question the euro's future as a common currency. We observed that many investors more or less chose to sit on the sidelines and focus on the US, seeing it as the ideal investment destination—the US economy was stronger, yields were higher, and the dollar seemed well-supported. By late 2024, after the US election, markets had high hopes for the US, with massive capital inflows expecting another strong rally and rising profitability.
However, people then realized several things had happened. First was China's DeepSeek, which showed that it's not only US tech companies that can develop impressive AI models. This was an important discovery for the fund management market, perhaps catching them somewhat off guard. Second was Germany's fiscal policy U-turn. Germany had long underinvested in defense and infrastructure, but markets and politicians now realize they must change course and take action. Germany is one of the few countries with enough fiscal space to ramp up defense and infrastructure investment.
SFC: Does this mean that tech leaders like ASML and SAP, and pharmaceutical giants such as Sanofi and Novartis, will command a new, lasting "strategic valuation premium" due to their core role in ensuring European industrial competitiveness?
Mueller: This is mainly about the traditional economy—these are mature companies, yet they're still trading at steep discounts. In my view, Europe won't become an AI hub, especially not for foundational models. Right now, China and the U.S. are far ahead; Europe isn't in that race. I wouldn't focus on tech or AI in Europe. Instead, I'd suggest concentrating on where Europe has clear strengths. The European economy is diversified. European companies hold dominant market shares in pharmaceuticals, defense, luxury goods, hearing aids, and other niches. Overall, I wouldn't be too pessimistic about Europe's competitiveness at this point.
SFC: With macro paradigms potentially shifting, what's the one core principle you'd offer to global investors who feel lost?
Mueller: I'm a fundamental analysis person at heart. So, I believe that over the long run, markets ultimately reflect fundamentals. Financial markets are prone to panic, and perhaps at some point, there could even be a crash, with tech stocks or others seeing sharp price corrections.
When that happens, you need to calm down, turn off your screen, and think: what impact will this have on economic fundamentals? What does it mean for corporate profitability? For inflation? For the supply side of the economy? For the demand side? Usually, it's not the end of the world, it might just create some opportunities.
SFC: Looking ahead to 2026, what do you think will be the main drivers of the market? People seem tired of tariff news, so what are the more important factors?
Mueller: That brings us back to economic fundamentals. So far, US inflation data has yet to reflect a significant tariff impact, which is notable. Will that last? Will importers or other parties paying tariffs absorb those costs? Will they just accept the hit to their profitability? I don't think so.
I believe the market will be watching tariffs again next year. Tariffs pass through in two ways: one is by pushing up prices. The other is that companies, unwilling to raise prices, try to maintain margins by becoming more efficient—cutting costs, laying off workers. So, the second way tariffs hit households could be through higher unemployment. A large share of tariffs will ultimately be borne by consumers. The key is: if tariffs pass through via unemployment, the Fed can cut rates; if they pass through via higher prices, it's much harder for the Fed to ease. So, it's definitely a topic worth delving into.
Another topic is valuation. The market may need to digest lower returns in the coming years. The stock market's gains in the 2020s have already outpaced corporate profit growth. So, equity returns over the next ten years could be modest.
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