AI Bubble Could Trigger Worst S&P 500 Crash Since 2008, Strategist Warns

Panmure Liberum strategist Joachim Klement says the AI trade that has driven global equities to record levels may disintegrate as soon as 2027, with his base case pointing to a sharp selloff that would be the worst for the S&P 500 since 2008.

"My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years," Klement said in an interview. Equities have powered to record levels across the globe this year, fueled in part by optimism over surging spending on AI infrastructure.

Sharp downside targets

Klement's 2027 year-end target of 5,000 points for the S&P 500 implies 36% downside from current levels. That is by far the most bearish call among seven other strategists tracked by Bloomberg, who on average look for potential upside of 14%.

For Europe, he sees the Stoxx 600 falling to 430 points, more than 30% below current levels.

The strategist, who started his career at UBS Group AG more than two decades ago, is among the first to call an end to the current bull run. As recently as mid-September, his key assumption was that the S&P 500 would hit 8,300 points by the end of next year.

Why he changed his mind

Klement's change of mind reflects concern that stubborn inflation and an associated surge in the cost of borrowing needed to fund investment could derail the bonanza in AI-related infrastructure. Hyperscalers' free cash flows are largely depleted, while the cost of debt is rising quickly and becoming prohibitive for these firms, he said.

His warning echoes a caution this week from Temasek International's chief investment officer Rohit Sipahimalani, who said a reversal of the AI trade is a key risk facing global markets.

Data-center capital spending by hyperscalers in 2026 could more than double from last year's level to hit $713 billion, according to Bloomberg Intelligence estimates. That number is set to increase further next year, albeit at a slower pace, and has underpinned many of the projections for US tech companies' projected earnings.

"It is a situation where people are just focusing on one thing and one thing only, and that is earnings and in particular tech earnings," Klement said. "And they excuse every macro, credit or whatever headwind that you can come up with with that story."

What it means for Nigerian investors

Nigeria's equities market has ridden its own record run this year, and sentiment on the Nigerian Exchange has historically been sensitive to global risk appetite and foreign portfolio flows. A repricing of US tech earnings would tighten global credit conditions and could push offshore money away from frontier markets, including Nigeria. Local firms borrowing in dollars for capital projects would also feel the effect of a higher cost of debt.