Economist David Rosenberg, known for his contrarian views, warns that investors diving into stocks associated with artificial intelligence may face significant consequences. He believes that the current enthusiasm surrounding AI has become a major distraction from the risks of an impending recession. Rosenberg stated in an interview with CNBC’s “Fast Money” that there is undoubtedly a price bubble in this sector, drawing parallels to the dot-com boom of the late 1990s, especially in relation to the recent breakout of the Nasdaq 100 over the past six months.

Expressing his concerns, Rosenberg described the situation as “very weird” and noted that it appears highly overextended. This week, Nvidia’s exceptional quarter contributed to the mounting excitement around AI. Following a strong earnings report, the chipmaker raised its yearly forecast, attributing its success to the surging demand for AI chips. Consequently, Nvidia’s stock soared by more than 24% and has now surged by 133% in the last six months. Other AI competitors such as Alphabet, Microsoft, and Palantir are also experiencing a surge in their stock prices.

However, Rosenberg cautioned investors in a recent client note, suggesting that the rally may be running out of steam. He highlighted concerning breadth measures for the S&P 500, which are currently at their worst levels since 1999. According to Rosenberg, only seven mega-cap companies account for 90% of the year’s price performance, signaling a lack of broad market participation. He also pointed out that the tech sector’s weighting in the S&P 500 has reached 27%, a level reminiscent of the dot-com bubble peak in 2000 before its dramatic collapse.

While mega-cap tech companies continue to outperform, Rosenberg observed worrisome trading patterns in banks, consumer discretionary stocks, and transportation sectors. These sectors, known for their sensitivity to economic conditions, have declined by over 30% from their cycle highs. Rosenberg argued that their behavior is aligning with the patterns observed prior to the last four recessions.

Overall, Rosenberg’s warnings serve as a cautionary note to investors, urging them to be mindful of the potential risks and inflated valuations associated with AI-related stocks amidst a backdrop of economic uncertainty.