S&P 500 Could Crash Over 35% to 5,000 by 2027 If AI Boom Turns Down, Analysts Warn — Upcoming Earnings Season May Offer 'Critical Reality Check'

An artificial-intelligence downturn could push the S&P 500 to 5,000 by the end of 2027, analysts warned, urging investors to scrutinize hyperscaler spending during earnings season. Joachim Klement and Francisca Reis of Panmure Liberum said an AI-sector downturn could sharply reduce the benchmark’s value. Klement said, “..the upcoming Q3 earnings season and then the full-year earnings and guidance for 2027 in January will provide a critical reality check,” MarketWatch reported on Monday. Klement said investors face a capital-spending dilemma. Rising hyperscaler outlays could weigh on heavily represented technology stocks, while weaker spending could undermine chipmakers and data-center equipment manufacturers. Projections cited by Klement indicate hyperscaler capital expenditures could reach $1.2 trillion in 2027. He said an AI bubble could burst in 2027 or 2028, potentially alongside additional rate increases from the Federal Reserve and Bank of England. During a downturn, Klement favors defensive areas such as food producers and retailers, pharmaceuticals and tobacco. He added that utilities could also be a “good bet”, excluding those driven higher by expected AI-related energy demand. On Friday, the S&P 500 closed 0.73% at 7,722.72. Read Also: Sam Altman Breaks With Anthropic on AI Regulation, Says World Must Accept ‘Some Bad Things’ as AI Benefits Outweigh Harms AI Build-Out Sparks Bubble Warnings The warning comes as AI’s market narrative remains increasingly dependent on enormous capital commitments. In September, JPMorgan CEO Jamie Dimon said that AI spending could reach $1 trillion in 2027, up from $700 billion this year, boosting GDP but potentially adding inflation. Market research platform Bull Theory warned that a Republican loss in the November midterms could trigger an AI bubble burst as the industry becomes increasingly dependent on capital spending and external financing. Hyperscalers are expected to invest nearly $800 billion in 2026, with AI spending consuming 93% of their cash flow and bond issuance reaching about $250 billion, said the firm. Dot-Com Bubble Parallels Investor Whitney Tilson noted that five companies —Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ:GOOG), Amazon.com Inc. (NASDAQ: AMZN), Meta Platforms Inc. (NASDAQ: META), Microsoft Corp. (NASDAQ: MSFT) and Oracle Corp. (NYSE: ORCL)— account for a significant share of AI infrastructure spending. He warned that the industry’s reliance on debt could increase financial risks. He also believes that AI resembles the dot-com bubble, citing eight similarities, including unproven business models, heavy losses, potential regulation, Chinese competition, circular financing, rising debt and investor enthusiasm around a perceived "new paradigm." Price Action: On a year-to-date basis, the SPDR S&P 500 ETF Trust (NYSE: SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, surged 12.86% and 22.02%, as per Benzinga Pro. Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Read Also: S&P 500 Analyst Optimism Reaches 'Highest Level on Record,' Leaving 'Less Room' for Market Upside, Says Charlie Bilello Photo courtesy: Shutterstock