Chief Strategist Says AI Fears Are Missing the Bigger Picture

Seema Shah, Chief Global Strategist at Principal Asset Management, recently pushed back against the growing chorus of AI-bubble warnings on a CNBC appearance, telling viewers her outlook on equities remains “still very constructive” even as risk signals multiply.

Shah’s comments landed after the Bank for International Settlements issued a report warning of global risks tied to the AI buildout, rising debt, and the potential for a bigger bust. They also followed a week in which leadership inside the U.S. market visibly shifted away from the megacap tech names that have powered the cycle.

The Long-Term AI Thesis

Shah’s framework for long-term AI-driven growth rests on three pillars:

First, on AI itself, she argues that AI companies will keep earning and that the AI infrastructure buildout will be sustained, even as investors should brace for near-term “wobbles.” Looking 6-12 months and beyond, she sees the story intact.

Second, the earnings story has widened. Shah emphasized that earnings growth has broadened beyond tech over multiple quarters, supported by what she described as strong macro foundations. That broadening is what lets the bull case survive a rotation out of AI names rather than collapse with it.

Third, on inflation, Shah expects parts of the picture to improve as energy prices fade, while structural factors, specifically the AI capex buildout, likely keep inflation above target for the foreseeable future. She frames that as a genuine Fed dilemma rather than a clean disinflation glide path.

The Market’s Bull Case Is Expanding Beyond Tech

The Russell 2000 hit a record close on Friday and is up 37.7% in the past year, while healthcare had its best week since June 2022. The equal-weighted S&P has outperformed the market-cap-weighted S&P as investors rotate away from AI.

That kind of breadth shift is exactly what bulls want to see when megacap leadership wobbles. It also helps explain why Shah is willing to look through near-term volatility in the AI trade. If earnings are spreading across sectors, the index does not need NVIDIA-style names to do all the heavy lifting from here.

Why Inflation Still Matters

Macro data published by the Federal Reserve and FRED frames Shah’s structural-inflation call. Core PCE, the Fed’s preferred gauge, stood at 130.082 as of May 1, 2026, up 0.3% on the month, with the Fed’s 2% year-over-year target still out of reach. The Fed funds target upper bound has been held at 3.75% since December 11, 2025, after 75 basis points of cuts from the September 2025 peak of 4.5%. The 10-year Treasury yield sits at 4.40% as of June 25, 2026, a level that has not dipped below 4% over the past 12 months.

Energy supports the other half of her view. WTI crude was $78.94 per barrel as of June 22, 2026, down $21.41 over the prior month, after peaking at $114.58 on April 7, 2026. That pullback is the kind of fade Shah expects to ease the cyclical component of inflation while the AI-capex piece keeps the structural floor higher.

What Investors Should Watch

Shah believes the long-term AI story remains intact, but investors should keep an eye on two key risks. First, sticky inflation could keep the Federal Reserve from cutting interest rates as quickly as markets expect. Second, the massive wave of AI capital spending still has to translate into meaningful revenue and earnings growth. If it doesn’t, today’s valuations could come under pressure.

The key signal to watch is whether the earnings broadening Shah describes continues over the next two reporting seasons. If more sectors continue posting solid profit growth, the recent weakness in AI stocks is more likely to be remembered as a healthy market rotation than the start of a broader downturn.