Investors may still get a few months of gains, but several analysts now see the AI-driven stock boom moving into late-stage bubble territory.
James Reilly, senior markets economist at Capital Economics, repeated his forecast that the S&P 500 could finish this year at 8,250, up 7.7% from Friday’s close, before sliding 21% to 6,500 by the end of 2027. He said the data look 'consistent with a late-stage bubble' and added that 'most of the factors we consider are at, or close to, levels that have preceded past stock market peaks.'
Reilly pointed to several warning signs. He said stock valuations are close to past extremes, with the market’s cyclically adjusted price-to-earnings ratio near its dotcom peak and the S&P 500’s valuation versus Treasury bonds also near dotcom levels. He also said forward 12-month earnings-per-share growth looks unsustainable, that free cash flow for the top AI hyperscalers is expected to turn negative in 2027, and that market concentration in a few stocks is at extreme levels.
Equity issuance is another red flag, in his view. With IPOs and follow-on offerings building, he said more stock supply is coming and has historically marked the end of a bubble within months rather than years.
The bond market is sending its own message. The 10-year Treasury yield hit 4.97% on Friday, and Rockefeller International Chairman Ruchir Sharma said a decisive break above 5% would be an important signal. In a recent Financial Times op-ed, he warned that such a move would mark 'the start of a new era of tighter money,' making AI mega-projects harder to finance.
Sharma said yields above 5% would also make it harder for hyperscalers to issue bonds and more difficult to sell new equity, since higher yields have historically pressured stocks. He added that the move would come as U.S. debt has already climbed above 100% of GDP, raising debt-servicing costs and squeezing other borrowers.
Even bullish voices are turning less confident. Wall Street veteran Ed Yardeni cut the odds of his 'Roaring 2020s' scenario for the rest of the decade from 80% to 70%, while raising the odds of a bearish outcome from 20% to 30%. He said 'recent developments in the oil and bond markets are unnerving.'
The market has already voted, and it rarely waits for Washington or Wall Street to admit what is happening. When valuations stretch, cash flow turns fragile, and borrowing costs rise, the taxpayer is usually left dealing with the fallout after the leverage unwinds.
Capital rewards clear rules, not endless speculation subsidized by easy money. If the 10-year yield really does move above 5%, the adjustment will not just hit AI traders and high-flying stocks. It will expose how much of the modern boom has depended on cheap credit, rising debt, and the illusion that gravity no longer applies.
