The artificial intelligence bubble that has pushed U.S. stocks to record highs is starting to deflate, according to some Wall Street analysts. John Higgins, chief economic adviser for financial markets at Capital Economics, stated in a report on Monday that there are clear signs of being in the late stages of an AI bubble. The firm’s best guess is that the bubble will begin to burst in 2027, alongside a forecast for a correction in the S&P 500 stock index next year, meaning a drop of at least 20% from recent highs. Capital Economics senior markets economist James Reilly noted that leading AI firms’ projected earnings growth looks heavily stretched compared to broader U.S. economic growth, drawing parallels to the dot-com era. While acknowledging that AI will be transformative and generate profits, Reilly expressed doubt that returns will match current analyst expectations. Goldman Sachs projects that global capital expenditures on AI-related projects will reach $1 trillion in 2026, including $581 billion in the United States, driving an epic two-year stock market rally. Economists emphasize that spotting investment bubbles or predicting their collapse remains exceptionally difficult. EY-Parthenon chief economist Greg Daco pointed out that early technological revolutions consistently attract heavy investments accompanied by speculative excess and exuberance. Conversely, Kenneth R. French, an investment strategist at Dartmouth College’s Tuck School of Business, remains skeptical that the AI boom is losing momentum soon. French suggested that investors frequently embrace tech stocks before understanding a technology’s full economic impact, adding that society might even be underestimating AI’s ultimate positive influence. Meanwhile, public narratives around AI are evolving amid corporate warnings regarding the technology’s risks and calls for development slowdowns. Daco noted that these safety and control concerns differ fundamentally from traditional bubble fears regarding corporate investments and financial returns.
Source: cbsnews.com
