A bursting AI bubble could trigger mass layoffs across the US economy and erase a substantial share of equity market value, according to the market intelligence firm S&P Global.
In a new scenario analysis, the firm highlights that AI-focused companies have become a dominant force in US equities, driving a large share of market gains over the past five years and leaving the S&P 500 increasingly concentrated in a small group of technology giants.
S&P Global says the sharp rise in market capitalization among AI-linked firms, alongside valuation signals, suggests that investors are pricing in aggressive future earnings growth. The firm notes that trailing price-to-earnings ratios for leading AI stocks now exceed forward P/E ratios, reflecting strong optimism around continued AI adoption and monetization.
“The AI-driven boom has been a significant contributor to the broader market’s performance, fueling a substantial portion of the S&P 500’s 52% growth during January 2020–November 2025.”
S&P Global highlights that concentration risk has intensified alongside the rally. Just seven companies now account for nearly 30% of the S&P 500’s total market capitalization, while the information technology sector’s market value has surged more than threefold over the past five years.
With tech companies doing most of the heavy lifting, S&P Global warns that a deep sell-off in AI names could trigger a chain of events, where overleveraged technology firms default, and layoffs spread across the US economy.
“The US would take the biggest hit but avoid a recession. The S&P 500 would lose more than 50% of its value. More than 2.5 million US jobs would be wiped out in the tech sector and beyond. Employment losses, as well as a strong credit retrenchment from banks, would weigh on households’ revenue and consumption. As companies cut back on innovation spending, long-term investment and potential growth also take a hit.”
“Big Short” investor Michael Burry recently predicted that the AI bubble would burst in 2027, believing that today’s tech cycle mirrors the dot-com era that wiped out $5 trillion in wealth.
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.