Black Swan's Nassim Taleb warns on software bankruptcies, more volatility

By Natalia Kniazhevich

 

Nassim Taleb has a warning for investors: brace for escalating volatility and potential bankruptcies in the software sector as the artificial intelligence-driven rally enters a more fragile phase. 

 

To the author of The Black Swan, the markets are underpricing structural risks while overestimating the durability of today’s artificial intelligence leaders. While AI will generate enormous profits, he cautioned that history suggests early pioneers are often displaced.

 

“Someone will make a lot of money in AI,” Taleb said in an interview at the sidelines of a SeaFair event hosted by Universa Investments in Miami. It’s not guaranteed to be the companies that make up the AI trade today. He said bankruptcies in parts of the software space are likely as technological instability, intense competition and shifting geopolitics reshape the industry.

   

The S&P 500 Index fell around 1 per cent on Monday, the latest in a string of selloffs as investors grapple with tariff uncertainty and two competing narratives that are driving AI anxiety. On the one hand, investors fear fast-developing AI tools will disrupt software companies that offer subscription-based services as coding becomes easier. At the same time, the technology giants racing to develop and buildout the AI infrastructure have embarked on a dangerous borrowing spree that may not pay off for years.

 

Taleb, who rose to prominence for his predictions on past financial crises, noted that with much of the equity rally in the past couple years being driven by a narrow group of AI-linked stocks, broader indexes were left vulnerable if leadership rotates. “Tail-risk across sectors is structurally underpriced,” Taleb said. “The risk is not a small correction. It’s a large drawdown.”

 

Still, Taleb expects the market rally may continue in the near term. The bigger issue, he said, is the scale of potential downside. 

 

“You always need hedges,” he said. “These drawdowns are not easily predictable.”

 

Universa Investments, where Taleb serves as a distinguished scientific adviser, specializes in tail-risk hedging strategies designed to profit disproportionately during market crises. The firm delivered more than a 100 per cent of average annual return on capital last year. 

The Road Ahead 

Taleb said structural shifts are underway, particularly in gold. While stocks were fluctuating between gains and losses amid concerns over the sustainability of the AI trade and rising geopolitical tensions, the precious metal has surged roughly 30 per cent since October.

 

He pointed to persistent US deficits and concerns over the weaponization of the dollar through sanctions policy.

 

“The US is progressively losing its status as a reserve currency at the margin,” he said. “If there’s a perception that assets can be frozen or confiscated, that reduces the incentive to store wealth in dollars.”

 

On trade policy, Taleb said tariffs can be effective if implemented predictably, but erratic execution discourages investments.

 

“If tariffs are permanent and clear, businesses adapt,” he said. “If policy shifts unpredictably, you remove the incentive to commit capital.” He also warned that tariffs function as a regressive tax, disproportionately affecting lower-income consumers and exacerbating inequality.

 

Taleb, who coined the term black swan for unpredictable and far-reaching market-events, highlighted the risk of an oil supply disruption tied to tensions between the US and Iran. While oil prices are notoriously difficult to predict, he warned that the global economy cannot withstand another 1970’s-style shock.

 

“That kind of commodity-driven stagflation cannot easily be fixed with monetary policy,” he said. “You could bring Einstein to the Fed — it wouldn’t solve it.”