Former BlackRock portfolio manager and Phinance Technologies co-founder Ed Dowd said in an interview with Kitco that 45% of the market cap of the S&P 500 is related to the AI sector, and that, at current valuations, the expected return over the next 10 years is zero. He said that private credit packaged into insured “wrappers” and resold to insurance companies is a structure that “sounds a lot like the 2008 financial crisis.”
Credit default cycle kicks in: Private credit growth stalls
Dowd said the key factor driving this cycle’s turning point is the credit market, not the stock market. PIMCO warned months ago that the market is in the “early stage of a credit default cycle.” Private credit is estimated to have expanded by 50% to 75% during 2024-2025 due to commercial banks making large loans to non-bank financial institutions; but now that growth has stalled. Some funds have started to restrict redemptions, and investors are demanding their money back. He cited Oracle as an example, saying its credit default swaps (CDS) are surging and its stock continues to face pressure.
Dowd said Wall Street is packaging private credit funds into insured securities and reselling them to insurance companies. He said the structure “sounds a lot like the 2008 financial crisis”—and when losses come to light in the future, the ones under pressure will be “insurance companies, asset managers, high-net-worth individuals, and pension funds and endowment funds,” not commercial banks.
Real estate market nearly frozen: 30% overvaluation, 9-month new-home inventory
Dowd estimated that U.S. home prices are broadly overvalued by about 30%. He said the real estate market is “basically already frozen,” with 75% of real estate agents having not closed a deal in a year. New-home inventory is equivalent to roughly 9 months of supply.
U.S. Census Bureau data shows that May new single-family home inventory was 10.3 months. NAHB data shows that the share of homebuilders offering price cuts first exceeded 40%, with average discounts of about 6%. Nearly two-thirds of builders are offering incentives such as mortgage rate buydowns. Mortgage Bankers Association (MBA) and Cotality data show that the Q1 foreclosure inventory rate rose to 0.4%, a six-year high, and the number of active foreclosures increased by about 34% versus a year ago.
The median price of new homes for Q1 2026 is $403,200, below existing homes at $404,600. This marks the fourth consecutive quarter that new homes have been priced below existing homes, and many see it as the first sustained situation of its kind since at least 1974.
AI stock concentration risk: 45% of S&P 500 market cap tied to AI
Dowd said 45% of the S&P 500’s market cap is related to AI and AI-related sectors; semiconductors account for 19% of the S&P 500. He said this narrow leadership in growth resembles the period before the burst of the internet bubble and before the 2008 crisis. He believes that under current valuations, stock returns over the next 10 years are “expected to be zero, including dividends.”
Dowd listed four factors he believes will halt the AI capital expenditure boom:
China model commoditization: Low-cost models such as Kimi (Moonshot) create pricing pressure. In the interview, Dowd mentioned reports that Moonshot is seeking financing at a valuation of $50 billion.
Corporate investment pauses: After overspending earlier this year, companies have started to pause expansion.
Credit markets demand real returns: Funding sources require proof of actual commercial returns.
Insufficient power supply: The power supply needed to support new data centers is not keeping up with the pace of expansion.
FAQ
What is Ed Dowd’s long-term gold target, and what is his current position?
Dowd’s long-term goal is for gold to reach $10k per ounce around 2030. The logic is that a global slowdown forces central banks into large-scale QE. But he is currently cautious about gold because the price of gold has fallen by about 27% from this year’s January record highs and it briefly dropped below $4,000 last Monday. He expects a larger-scale rebound to start after the Fed and fiscal policy take action.
What does Dowd think is the biggest risk for the current S&P 500?
Dowd believes that about 45% of the S&P 500’s market cap is concentrated in AI and AI-related sectors, with semiconductors accounting for 19%. Historically, a highly concentrated setup like this has appeared in the internet bubble and before the 2008 crisis. He expects that under current valuations, stock returns over the next 10 years “including dividends are expected to be zero,” and there could be a major drawdown of 40%–50%.
How does Dowd suggest ordinary investors allocate their assets?
Dowd recommends: precious metals (gold, silver) make up 5% to 10% of the overall portfolio; increase the cash allocation (citing Buffett and David Tepper holding 40% cash as an example); his own holdings are “no stocks, only cash, gold, and long-term U.S. Treasuries.” For those with limited assets, prioritize protecting income.
