Panmure Liberum’s head of market strategy, Joachim Klement, now expects the S&P 500 to end 2027 at 5,000 points.
He warns that unwinding the artificial intelligence (AI) trade could spark the worst crash since the global financial crisis.
Borrowing Costs Close In on the AI Build-Out
Klement’s 5,000 target implies a roughly 36% drop from the index’s October 7 close of 7,801.77. The S&P 500 has gained 13.97% this year, but the rally has been led by AI stocks.
Over the 6 months to October 6, the benchmark rose 18.3%. Goldman Sachs’ index excluding AI enablers gained just 6.7% in the same period.
Klement’s target marks a sharp shift from just weeks earlier, when he expected the index to climb to 8,300 by the end of 2027.
His reversal stems from worry that sticky inflation and higher borrowing costs could derail the AI build-out. He said that hyperscalers have largely used up their free cash flow.
Meanwhile, the cost of debt is climbing fast enough to become prohibitive for them, he added. Klement set a two-year window for the turn.
“My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years,” he said.
Bloomberg Intelligence estimates hyperscaler data-center capital expenditure could more than double in 2026 to $713 billion. The figure is set to rise again next year, though at a slower pace.
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The Most Bearish Call on the Board
His call is by far the most bearish among strategists tracked by Bloomberg. The 7 others see average upside of 14%.
However, Klement’s warning about the AI trade has company among major investors. Temasek International’s CIO named a reversal of the AI trade as a key risk for global markets. Ray Dalio warned that the AI boom resembles a “classic bubble” that could be close to bursting.
In contrast, Barclays kept its 2027 S&P 500 target at 8,800 when it raised its year-end forecast in September. Citigroup strategists also said this week that solid 2027 earnings can lift equities despite higher rates.
In Europe, Klement sees the Stoxx 600 falling to 430 by end-2027, more than 30% below current levels. Still, he remains the most bullish tracked strategist on the index through 2026, forecasting gains of about 10%.
He also admitted the bearish call may be premature.
“I’m starting to worry people today for something that I think might happen in six to nine months,” he added.
Investor Michael Burry also pointed to a 6- to 9-month window this week. He said stocks are in denial, a phase that lasted that long before the 2000 and 2008 crashes.
Klement’s one key signal is the S&P 500 dropping below its 200-day moving average, which last happened in March. At that point, he would go fully defensive, favoring food, tobacco, and pharmaceutical stocks.
He told Reuters that strong earnings and resilient economic data still support stocks. Third-quarter results and 2027 guidance due early next year will test whether that holds, he said.
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