Talk of a possible artificial intelligence (AI)-fueled stock market bubble is rife in the financial community. According to research company Capital Economics, this AI-driven bubble—fueled by investor enthusiasm for tech stocks—may cause the S&P 500 to soar to 6,500 by 2025. However, this bullish trajectory is poised to take a sharp downturn and the bubble is expected to pop in 2026.
The Bursting Bubble
A slightly strange viewpoint is presented by the economists at Capital Economics. Although they predict that the widespread use of AI would spur economic development, they also believe that this will raise inflation and, in turn, interest rates. These macroeconomic changes, which are reminiscent of the effects of the dotcom boom on the market in the early 2000s, predict disaster for stock prices.
Impact on Investment Landscape
Ten years of preferring bonds over stocks in terms of investment returns will begin with the much-anticipated implosion of the stock market bubble. For US equities, Capital Economics predicts average annual returns of only 4.3% until the end of 2033—a far cry from the strong 13.1% returns seen over the previous ten years. US Treasurys, on the other hand, are predicted to beat stocks by a little, yielding 4.5% more in the same time frame.
Potential Implications for Indian Stocks
With significant AI stocks listed on the NASDAQ, the US is expected to be the epicentre of this forecasted bubble bust. If the NASDAQ collapse, the Indian stock market may experience the aftershocks, although milder ones. The amount of this influence, however, is yet unknown and depends on whether the alleged bubble actually exists and bursts.
Keep watching our YouTube Channel ‘DNP INDIA’. Also, please subscribe and follow us on FACEBOOK, INSTAGRAM, and TWITTER.
