Global stocks have hit record highs this year as investment in artificial intelligence infrastructure has surged. But Joachim Klement, head of market strategy at Panmure Liberum, warns that the AI trade could unravel in 2027, potentially triggering the steepest market sell-off since the 2008 global financial crisis. For investors, the risk is not limited to whether AI-linked valuations can hold: markets are also increasingly reliant on continued growth in infrastructure spending.
AI investment helps drive global stocks to records
Major equity markets have advanced this year, supported in part by optimism about the development of artificial intelligence. Investors are betting that wider adoption of AI will drive demand for infrastructure, with the prospect of rising spending helping sustain market sentiment.
Klement cautions that the AI-led trade may not last. His base case is that it could break down as early as 2027, dealing a significant blow to equity markets. That is a scenario, not a definitive market forecast, but it highlights concerns about how long the AI investment boom can continue to support share prices.
Klement sees risk of the worst sell-off since the financial crisis
The warning extends beyond a potential pullback in a single sector. Klement says a reversal in the AI trade could lead to the most severe market crash since the global financial crisis, raising the possibility that losses could spread across equities rather than remain confined to AI companies.
The available details do not specify a potential decline in the S&P 500, valuation levels or the conditions that might trigger a reversal. Nor do they explain in detail why 2027 is the expected turning point. Klement's statement is therefore best understood as a risk scenario, not a firm prediction about the timing or scale of a decline.
Investors are watching whether AI spending can sustain the rally
Rising investment in AI infrastructure has helped fuel optimism. If expectations for that spending change, the AI trade could be repriced. Market participants will need to watch how company spending evolves relative to expectations, though Klement's warning does not provide specific data or analysis of individual companies.
The central point is that Klement considers an unravelling of the AI trade in 2027 his base case, with potentially severe consequences for equities. Whether that scenario materialises, and how widely any market impact would spread, will depend in part on AI infrastructure investment and broader market conditions.