AI-Fueled Stock Market Boom May Be Setting Up for a Crash

The S&P 500 has seen an unusually high growth rate of 72% over the past three years, fueled by optimism around generative artificial intelligence (AI) megatrends.

This is higher than the typical annual return of 10%, and some historians are warning that this period may be repeating a pattern not seen in decades.

The dot-com bubble in the late 1990s shows a striking similarity to the current AI boom. In the late 1990s, the S&P 500 index peaked at an all-time high of 1,552.87 on March 24, 2000, after returns of 21%, 28.5%, and 33% in the previous three years.

Analysts at Goldman Sachs estimate that about half of the S&P 500's earnings growth comes from AI-related capital expenditures (capex), which could lead to a sharp reduction in growth rates and profit margins for companies like Nvidia and Micron.