Bankless Podcast Summary

Episode: Defensive Investing for an AI Bubble | Ruchir Sharma's Hedge Rules

Date: November 19, 2025
Guest: Ruchir Sharma, CIO of Breakout Capital, author of 'The Rise and Fall of Nations', 'What Went Wrong With Capitalism?'
Host: Ryan Sean Adams ("A")

Episode Overview

This episode features renowned investor and author Ruchir Sharma, discussing his contrarian views on global investing in the age of AI, the concentration of capital in US equities, warning signs of an AI-driven bubble, and practical guidance for portfolio diversification—especially for US and crypto-heavy investors. Sharma delves into global cycles, the allure and risks of the present AI boom, the fate of emerging and international markets, and strategies for investing defensively amid elevated valuations and shifting macro trends.

Key Discussion Points & Insights

1. The End of American Exceptionalism & the Cycle of Decades ([00:48])

• Sharma describes investing decades as cycles:
  • 1990s: Tech & NASDAQ
  • 2000s: BRICs (Brazil, Russia, India, China) / Emerging Markets
  • 2010s: American Exceptionalism (vast US outperformance)
• Current Trend:
  • Sharma claims the multi-decade US outperformance is ending, citing rising international equities (+30% in dollar terms in 2025 vs. ~15% for S&P 500).
  • He expects this will be a “multi-year trend” of international markets outperforming the US.
  • Investors are still enamored by US AI innovation, missing “green shoots” globally.
  • Quote:

    "The real big story here is that the international markets have done far better than the US this year." (B, [02:56])

2. What’s the Theme of the 2020s? ([03:57])

• Many think the AI boom resembles the 1990s (US tech leadership).
• Sharma points to early diversification:
  • China is catching up in AI, spending much less than the US.
  • Gold, Bitcoin, and other assets are emerging as alternatives to the US dollar.
  • "TINA" (There Is No Alternative) is being challenged by new global opportunities.

3. Is America Just an AI Bet? ([06:27]–[12:30])

The “America = AI” Thesis:

• 40% of US economic growth in 2025 is coming from AI investment.

• 80% of stock market gains tied to “AI plays” (hyperscalers, profitless tech companies).

• The Wealth Effect: Stock market gains (from AI stocks) are fueling consumer spending, mostly among wealthier households.

• American bond markets remain calm despite record fiscal deficits because investors hope AI will spawn a productivity boom and fix US indebtedness.

• The US dollar’s resilience is also credited to “AI hype”—foreign investors are ignoring political headwinds and buying into US tech.

  Sharma cautions:

  “This big bet on AI better work out, because if it weren't for all this massive AI hype, I think the American economy would today be close to stall speed…” (B, [11:44])

4. Counterfactual: No AI Boom, What Then? ([12:30])

• Host asks: If AI hadn’t suddenly boomed, would the US be in recession?

• Sharma’s reply:

  • The US economy would be far weaker and might not withstand current protectionist tariffs and immigration clampdowns.
  • The only reason such policies haven’t caused more harm is because the AI surge has “more than offset” their negative effects.

  Quote:

  "It's not because tariffs and the clampdown on immigration are not having a negative impact, but they're being more than offset by the AI boom." (B, [13:13])

5. Wealth Creation vs. Wealth Preservation ([18:12])

• Host posits: “Concentration produces wealth, diversification preserves it.”

• Sharma agrees but stresses risk in over-concentration (all-in AI/US).

• Skepticism:

  • Even if AI fulfills its promise, social risks (labor displacement) may disrupt demand.
  • He’s wary of piling into “unprofitable companies” late in the cycle.
  • Would seek more diversification and focus on quality companies.

  Quote:

  "Obviously we know [AI] is going to be transformative ... But I just don't know if... the large populace is going to just sit back... at the altar of profit margins..." (B, [19:18])

6. Are We in an AI Bubble? ([21:58])

• Sharma’s bubble definition: “A good story that's gone too far.”

• Sees signs of an AI bubble:

  • Overtrading, overinvestment, high valuations, euphoria.
  • Bubble may persist until monetary tightening or a negative catalyst.
  • Only sustained inflation (forcing Fed to act) is likely to prick the bubble.

  Quote:

  "Every bubble's a good... story, but it's gone too far... But it's very hard to know as to what stage of that bubble we are in." (B, [23:33])

7. How Did the US Become the World’s Main Bet? ([27:45])

• Recap of the 2010s:

  • US recovered fastest from GFC, led world in tech innovation.
  • Emerging markets faltered post-2008, Europe became the “Silicon Valley of regulation.”
  • The US government created an implicit “downside guarantee” for investors (socializing losses), emboldening risk-taking.
  • American households’ equity allocation is now at a record high (>50%).

  Notable Moment:

  “That's surpassed the peak we saw even back in 2000 at the height of that boom... because they feel that on the downside, the government's always there to protect us.” (B, [32:44])

8. How to Diversify: Practical Advice for Investors ([37:37]–[48:48])

• Retail Investors’ Dilemma:

  • US index funds are easy; international investing is daunting.
  • Skepticism about Europe (“sleepy”), India (catching up?), China (rising, but risky equities), and unfamiliarity with other markets.

  Sharma’s Guidance:

  • Don’t use recent performance as your only compass.
  • Ignore hype and seek markets/regions where expectations are extremely low.
  • High quality stocks (stable ROE, cash flow) have lagged in the AI mania—offers attractive entry points now.
  • Diversify overseas:
    • Start with broad international indices (MSCI World ex US, unhedged).
    • Currencies matter—a weakening dollar will boost international returns for USD investors.
    • For country-specific bets: India (GDP, earnings growth tie closely), China (government now pro-equity), and reformed “basket case” economies (e.g., Greece).

  Quote:

  “Always be wary of too much hype...the odds that you're going to be able to make too much money on the back of that is a bit limited.” (B, [44:27])
  “There's not been a better time to invest in quality stocks.” ([46:05])

9. Gold: Safe Haven or Just Another Bubble Asset? ([58:02])

• Gold’s rally since 2022 driven by:

  • Central bank demand (esp. post-US sanctions on Russia).
  • Liquidity-fueled rally; gold and stocks rising together (rare, unusual).

• Risks:

  • If monetary tightening comes, gold may fall alongside equities—losing its hedge characteristics.

  Quote:

  “Gold may no longer be the hedge that people think it is because of late it's got caught up in this liquidity fueled rally...” (B, [60:54])

• Gold as an emerging-markets play (esp. China's reserve rebalancing) is somewhat valid, but Sharma prefers direct equity investments in emerging markets for better risk/reward now.

10. Cryptocurrency & Bitcoin: Is It Fulfilling Its Promise? ([66:16])

• Sharma is “relatively bullish” on Bitcoin as a debasement hedge and digital gold.

• Pros:

  • Successfully building acceptance as an investment asset.
  • Volatility is declining slowly.

• Cons:

  • “Adoption in transaction use is very, very limited so far.”
  • Most usage is for investment/speculation vs. actual exchange.
  • In 2025, gold has outperformed Bitcoin despite the digital gold narrative.

  Quote:

  “…bitcoin has defied so many skeptics and done relatively well... but its adoption in transaction use is very, very limited so far.” (B, [66:50])
  “Two cheers for the bitcoin bulls...” (B, [67:17])

Notable Quotes & Memorable Moments

• On the Bubble:

  “For me, the basic definition of a bubble is a good story that's gone too far.” (B, [23:33])

• On Diversification:

  "Concentration produces wealth, diversification preserves it." (A, [18:12])

• On AI Hype:

  "This big bet on AI better work out..." (B, [11:44])

• On Contrarian Opportunity:

  "...the opposite of love is not hate, but indifference. Right. So. And you have so many sort of markets out there where people are just indifferent..." (B, [43:57])

• On Emerging Markets:

  "The best time to invest in a country is typically when you know that country has its back to the wall and some new leader comes and is forced to take radical steps to correct course." (B, [54:01])

Actionable Takeaways & Practical Portfolio Tips

• Diversify outside US equities; default to international broad indices as a start. ([48:48])
• Pay special attention to undervalued markets with negative sentiment (e.g., Europe, select emerging markets like India, Greece). ([54:40])
• Don’t chase the froth—favor “quality stocks” with strong ROE and cash flow, which have underperformed amid the current bubble. ([46:05])
• Beware simultaneous rallies in stocks and gold—a sign of liquidity excesses, not true hedges. ([62:35])
• Crypto (Bitcoin): Own a small allocation for “debasement hedge,” but don’t count on it for transactions or to outperform all other assets. Adoption remains slow. ([66:50])

Timestamps for Major Segments

| Segment | Start | |-----------------------------------------------------|----------| | American exceptionalism ending; new cycles | 00:48 | | The 2020s theme: Return of international/e.g. China | 03:57 | | “America is one big bet on AI”—data and implications | 06:27 | | Counterfactual: No AI, US economic scenario | 12:30 | | Wealth creation vs. preservation; risk of concentration| 18:12 | | Are we in an AI bubble? What would pop it? | 21:58 | | Recap of US equity dominance, government supports | 28:43 | | How can retail diversify beyond US? | 37:37 | | Country/currency/cycle rationale for international | 48:48 | | Gold’s rally and correlation to stocks | 58:02 | | Crypto as debasement hedge, adoption issues | 66:16 | | Closing & contact info | 69:34 |

Conclusion

Ruchir Sharma provides a macro masterclass, urging listeners to look past recent US-driven, AI-fueled gains and diversify into undervalued and under-owned global markets, particularly as cycles shift and bubbles inflate. He advises against overconcentration, suggests quality over hype, and offers frameworks for practical global allocation. He’s “two cheers” bullish on Bitcoin and critical of the current mispricing of gold as a hedge. For listeners with portfolios heavy in US equities or crypto, the message is clear: the next decade’s outperformance may be found where few are currently looking.