AI Boom Fuels Stock Market Surge, Raising Fears of a Potential Crash
WASHINGTON D.C. – A surge in investment surrounding artificial intelligence (AI) is driving a rapid rise in stock market valuations, prompting comparisons to the dotcom era of the late 1990s and early 2000s. While investors hope for considerable returns on this spending, economists are warning of potential risks to the global economy, despite current indicators suggesting a lower probability of an immediate, systemic financial crisis.
The S&P 500, a key indicator of the performance of the American stock market comprising 500 leading domestic companies and representing approximately 80% of available market capitalization, has seen significant gains. However, achieving a 10 percent return on planned AI investments would require approximately 560 billion euros annually – equivalent to over 345 euros per iPhone user. History suggests that initial expectations for new technologies are frequently enough overly optimistic.
Despite these concerns, a report by The Economist indicates the likelihood of a serious financial crisis remains low, at least for now. Unlike the 2008 financial crisis, the current AI boom is largely financed by equity rather than debt, and the real economy has demonstrated resilience in the face of recent challenges like the European energy crisis and US trade wars, with recessions becoming “increasingly rare.”
Though, experts caution against complacency. A major stock market crash, even without a collapse of the financial system, could trigger a global recession. A key vulnerability lies in American consumption, where stocks represent 21 percent of US household wealth, and nearly half of recent wealth growth has been attributed to AI stocks. This has correlated with a decrease in savings rates.
A decline in asset values could significantly curb consumer spending, impacting both Europe and China and potentially escalating trade tensions. This could lead to a fall in global trade, reduced American spending, a shrinking US trade deficit, and exacerbated overproduction in China.
The article concludes that while a US stock market crash may be anticipated, the world remains largely unprepared for the potential consequences.
