AI bubble risks worst S&P 500 crash since 2008, strategist says

Joachim Klement, head of market strategy at London investment bank Panmure Liberum, warns that the artificial intelligence trade may soon be over, potentially triggering the most severe market crash since the 2008 global financial crisis. Klement expects the AI bubble to burst between 2027 and 2028, leading to a sharp decline in stocks.

Currently, he projects the S&P 500 to reach 5,000 points by year-end, representing a 36 percent downside from current levels. If the AI trade collapses, Europe’s Stoxx 600 could fall to 430 points, more than 30 percent below its current level. Klement attributes his change of mind to concerns that persistent inflation and rising borrowing costs may undermine the surging spending on AI infrastructure.

The demand for data-center capital spending by hyperscalers is expected to more than double by 2026, reaching $713 billion, according to Bloomberg Intelligence estimates. Klement notes that investors are overly focused on earnings, with tech companies' earnings being a key focus. He advises clients to develop contingency plans and timing tools to identify the onset of a market crash, suggesting a full defensive strategy once the S&P 500 falls below its 200-day moving average.