Picture This: AI Bubble Bursting Would Wipe Out 2.5 Million Jobs in US Tech Sector

The market capitalization of AI-focused companies has increased dramatically in the past five years. The observation that the trailing price-to-earnings (P/E) ratios of leading AI stocks are higher than their forward P/E ratios suggests that the market is optimistic about future earnings growth and is reflecting a positive outlook on the sustained advancement and integration of AI technologies.

The AI-driven boom has been a significant contributor to the broader market's performance, fueling a substantial portion of the S&P 500’s 52% growth during January 2020–November 2025. 

The S&P 500 is now heavily concentrated, with just seven companies comprising nearly 30% of the index. On a sector level, IT has been the standout performer over the past five years, its market value surging 3.3-fold. 

The dependency of the AI market on a few big tech giants for AI hardware and technology makes it vulnerable to major disruptions. A single point of failure, such as a cloud incident, can initiate a cascading failure that begins with an AI model outage, propagates through enterprise applications and results in severe financial and reputational harm.

• AI-related companies are driving the overall value of US equity market. 
• There is a sharp sell-off of leading AI stocks, leading to a broader market downturn.
• Overleveraged tech companies default.
• The tech sector experiences significant layoffs.
• The credit sector resets.

• The US would take the biggest hit but avoid a recession.
• The S&P 500 would lose more than 50% of its value.
• More than 2.5 million US jobs would be wiped out in the tech sector and beyond.
• Employment losses, as well as a strong credit retrenchment from banks, would weigh on households’ revenue and consumption.
• As companies cut back on innovation spending, long-term investment and potential growth also take a hit.
• Europe and Asia-Pacific would be the most impact regions in the rest of the world. 

AI has been touted as a revolutionary technology that will reshape the global economy, and is driving unprecedented public and private investment. In particular, the market capitalization of AI-focused companies has surged dramatically over the past five years, often far exceeding what current revenue and profitability metrics would justify, and to the point where they are driving the overall value of the US equity market.

This overvaluation reflects not only investor optimism, but also a speculative bubble reminiscent of past market excesses. In particular, the dependency of the AI market on a few big tech giants for AI hardware and technology makes it vulnerable to major disruptions.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.