Stock market crash: AI bubble could burst in next 3 years, analyst says

• THE bubble Tech stocks still have a few years before they break out, said tech analyst Gene Munster.
• The top tech analyst told BI he thinks the Nasdaq could plunge as much as 30% when the bubble deflates.
• Top hardware stocks like Nvidia will likely face the most severe losses, he said.

The stock market’s tech frenzy still has a few years left before the air goes out on investors’ favorite deals.

That’s according to Gene Munster, a senior technology analyst and managing partner at Deepwater Asset Management. Munster thinks artificial intelligence has fueled a big tech bubble, and it will probably be another two years or so before it bursts, he told Business Insider.

The collapse – which Munster expects to take place in 2027 – could cause the Nasdaq Composite to fall as much as 30% as growth slows and the AI ​​hype train runs out of steam.

When the dust settles, the market’s top hardware stocks, like Nvidia and other chipmakers, could end up seeing the most severe losses, he predicted.

“I agree with that Nvidia will have a day of reckoning – and chip stocks, all commerce. And the question for us is not: “Will the bubble burst?” It’s, ‘How far will we go before the bubble bursts?'” Munster said.

Munster thinks two to three years is a reasonable time frame for tech business to continue to swell, given that AI is a “paradigm shift” and there are even more gains to be made from it. AI.

“Today, AI is largely a buzzword for most people. In reality, they don’t use it. Companies talk about implementing it, but most of them don’t And when the content of that starts to impact businesses, margins should increase, profits should increase,” he said.

At the same time, the market is giving signs that the extraordinary growth seen in 2024 will not be repeated in the years to come. The Nasdaq gained 29% last year, fueled largely by AI mania.

Nvidia, Apple, Amazon, Alphabet and Broadcom – five tech stocks that have been the face of the AI ​​business – accounted for 46% of the S&P 500’s total return last year, adding about $6 trillion in value, according to Goldman Sachs.

Growth expectations for technology stocks, meanwhile, are outpacing expectations in other areas of the market. The Magnificent Seven Group is expected to see 33% earnings growth in 2024, Goldman added, while other S&P 500 stocks are expected to see just 3% earnings growth.

Still, the mega-cap tech group’s profits are expected to decline over the next two years.

Investors also set themselves up for disappointment if they think the market’s best performers can continue to deliver consistent outperformance.

Munster stressed Nvidiathe chipmaker that has soared more than 2,000% over the past five years but has struggled to please investors in recent quarters despite its consistently strong results.

Munster predicted that investors would see the bubble begin to burst when Nvidia and other hardware stocks began failing to meet investors’ expectations with larger margins, sparking nervousness in the market and ultimately , an unraveling of technology commerce.

“These are just small variations in this growth rate. It’s so minute that it’s going to have a big impact on the entire market,” he added. “Growth will – mathematically it has to slow down, and when it slows down… then that’s when I think you start to see, at least the material part of trade, unravel.”

Warnings of a potential stock market bubble are brewing on Wall Street, with some forecasters warning of a significant correction as enthusiasm for AI reaches a boiling point. Most strategists, however, believe stocks will see another year of gains, albeit at a slower pace than in 2023 and 2024.