Economists warn of potential AI investment bubble burst

Wall Street analysts are warning of a potential deflation in the artificial intelligence bubble that has driven U.S. stocks to record highs. Capital Economics suggests the bubble may be entering its late stages, with a possible burst occurring in 2027. The firm also forecasts a potential correction in the S&P 500 index next year, where stocks could fall at least 20% from recent peaks.

Economists note that while AI is expected to be transformative, current earnings expectations for leading firms may be overstretched compared to broader economic growth, drawing comparisons to the dot-com era. Despite these warnings, global capital expenditures on AI-related projects are projected to reach $1 trillion in 2026, with $581 billion of that total originating in the United States.