Artificial intelligence has become one of the biggest factors driving up stock prices. The S&P 500 continues to hit new all-time highs, fueled by investor excitement about AI and massive spending by the world’s biggest technology companies.
But more investors are asking difficult questions: What happens if the AI boom goes awry?
Why some investors recognize the risk of bubbles
Market commentator Danny recently warned that the S&P 500 index may be more vulnerable than many investors realize.
He said he believes investors are buying a diversified index. In reality, there is an increasing reliance on a small number of Big Tech companies that are making big bets on AI.
Companies like Apple, Microsoft, Alphabet, and Meta are investing heavily in AI chips, data centers, and infrastructure.
Dany said Big Tech borrowing has surged 357% in one year as companies seek funding for AI expansion. He thinks this spending is akin to a fear-of-missing race, where companies funnel money into projects that may never produce good returns.
If AI fails to achieve meaningful productivity gains, he believes this will be the most expensive bubble in financial history. Therefore, the S&P 500 will experience a consequential decline. In his words, “It’s going to drag the entire S&P 500 into the abyss.”
Wall Street is also paying attention
According to a study cited by Bloomberg, AI-driven adjustments could cause the S&P 500 index to fall by as much as 20%.
JPMorgan CEO Jamie Dimon compared the current situation to periods that preceded major market downturns, such as 2000 and 2007. Ray Dalio, founder of Bridgewater Associates, said U.S. stock valuations are approaching levels seen during past bubbles.
One of the most notable changes came from Owen Lamont, senior vice president of Acadian Asset Management. He argued earlier this year that the market was not yet in bubble territory. But four months later, he warned that “a season of disruption is upon us.”
His concern was the wild price movements of AI stocks. Since April 2026, the gap between winners and losers in global stock markets has reached levels not seen since the peak of the dot-com bubble.
For example, semiconductor companies Micron Technology and SK Hynix rose 87.8% and 78.6% in May. Despite accounting for less than 1% of the major global stock indexes, it accounted for 17% of the index’s monthly returns.
Lamont also noted that analysts expect long-term S&P 500 earnings growth to be 20.2%. This is higher than the expected peak growth rate of 18.6% seen during the 2000 dot-com boom.
fear and optimism
The Nasdaq Composite Index fell 4.7% for the week after the better-than-expected U.S. jobs report on June 5. It was the index’s worst weekly performance in more than a year.
AI stocks were particularly hard hit. Nvidia fell 6.2% and Broadcom fell 7.9%.
Investors were concerned that rising interest rates would make investing in AI more expensive. Some questioned whether demand for AI services would grow fast enough to justify current spending.
The rebound happened just as quickly. Intel soared after securing an order for large tensor processors from Alphabet. Marvell Technology has risen more than 9% since joining the S&P 500. Micron rose nearly 10% as investors bought the stock.
Meanwhile, Amazon announced a multibillion-dollar deal with Corning to expand its fiber optic manufacturing for data centers.
The rapid decline and recovery showed how sensitive AI stocks are to economic indicators, earnings expectations, and investor sentiment.
Can spending on AI pay off?
According to a 2025 study from the Massachusetts Institute of Technology, 95% of companies investing in AI have yet to realize a return on their investment. Companies like OpenAI, Anthropic, and Cerebras Systems are profitable but still unprofitable.
This has led some analysts to question whether the current valuation reflects realistic expectations. Some worry that investors are assuming that AI will transform nearly every industry on a much faster timeline than expected.
James Covello, head of global equity research at Goldman Sachs, summed up this concern succinctly: “At the end of the day, companies need to make a profit.”
Bubble or long-term opportunity?
Not everyone believes the AI collapse is coming.
Some analysts compare today’s consumer boom to past investment frenzies such as railroads, electricity and oil exploration. These areas required a huge initial investment, but it paid off in the end.
Market strategist Warren Pais recently argued that even if the market is in a bubble, it may still be in its early stages.
Proponents of the AI view also argue that today’s tech giants generate significant cash flow. Demand for AI computing power remains strong, and companies are investing seriously in expanding their capabilities.
So, will AI beat the S&P 500?
The answer is still uncertain.
There is growing evidence that parts of the AI market have become highly speculative. Big spending, soaring valuations, aggressive earnings forecasts and a concentration on a few tech giants all resemble characteristics of past bubbles.
At the same time, today’s market leaders are very different from many dot-com era companies. These are profitable businesses with strong balance sheets and significant cash generation.
The biggest risk may not be that AI fails. Expectations may be so high that even strong growth could be lower than what investors were already pricing in.
If AI spending disappoints, the S&P 500 could face a painful correction due to its dependence on Big Tech. But if AI delivers the productivity gains that companies expect, today’s investments could be the foundation of the next technology era, rather than the beginning of a historic collapse.
Related: Fears of AI bubble send Arthur Hayes into crypto risk-off mode starting today
