The head of market strategy at a London-based investment bank issued a stern warning to investors: The AI trading frenzy may come to an end soon, potentially triggering the most severe market collapse since the global financial crisis.
Driven by the optimistic sentiment fueled by the surge in infrastructure investment represented by AI, global stock markets have reached new highs this year. However, Joachim Clement of Panmure Liberon believes that in his baseline scenario, this market rally will begin to collapse as early as 2027, leading to a significant decline in stock prices.
Clement said in an interview, "My core judgment is that the AI bubble will burst in 2027 or 2028, that is, at some point within the next two years." He stated that the free cash flow of large cloud service providers has basically been exhausted, and at the same time, debt costs are rising rapidly, which has become unbearable for such companies.
Clement has set a target of 5,000 points for the S&P 500 index by the end of 2027, which represents a decline of 36% from the current level. Among the seven strategists tracked by Bloomberg, this is by far the most pessimistic forecast; the rest of the strategists on average expect the index to still have about 14% room for upside. Clement predicts that the Euro Stoxx 600 index will fall to 430 points, a decrease of over 30% from the current level.
This strategist, who began her career at UBS Group over twenty years ago, was one of the first to predict the end of this round of bull market in the stock market. As recently as mid-September, her core assumption was still that the S&P 500 index would reach 8,300 points by the end of next year.
His shift in opinion stems from concerns that persistently high inflation, along with the resulting increase in financing costs, could dampen the enthusiasm for infrastructure investment in AI.
Temasek International's Chief Investment Officer, Rohit Sipahimani, also issued a similar warning this week: A reversal in the AI market trend is a major risk faced by global markets.
According to institutional estimates, the capital expenditure on data centers by major cloud service providers will more than double in 2026, reaching $713 billion. This figure is expected to continue to grow next year, although at a slower pace, which also serves as an important support for market forecasts of profits for American technology companies.
Clement stated, "Right now, the market is focused on just one thing: profitability, especially the profitability of tech stocks. Any macroeconomic, credit, or other negative factors can be explained away by this narrative."
Citi Group strategists said this week that despite rising interest rates and geopolitical risks, solid profits in 2027 should still support the continued upward trend of global stock markets.
Clement acknowledges that this bearish judgment may be premature; until the end of 2026, among the strategists tracked by Bloomberg, he remains the most optimistic about the S&P 500 index, predicting a rise of about 10% for this European benchmark index.
He said, "What I am reminding everyone to be wary of now is a risk that I judge may occur in 6 to 9 months."
This strategist does not recommend that clients sell now, but rather suggests developing emergency plans and timing tools to identify signals of a market collapse.
His primary recommendation is: once the S&P 500 falls below its 200-day moving average, one should fully shift to a defensive investment strategy. This technical indicator uses the average closing price of the index to determine the long-term market trend. In such a situation, he suggests investing in highly defensive sectors such as food, tobacco, and pharmaceuticals.
Clement said, "I want to tell everyone that it's time to get ready now. We need to start formulating emergency plans for the market to enter a bear market."
