Wall Street firm believes the AI stock market boom is 'nearing an end.' Here's why

Capital Economics says indicators of a bubble in AI-driven stocks suggest the rally may be nearing an end. In a note on Thursday, senior market economist James Reilly argued that while the S&P 500 still has room to rise this year, medium-term prospects look weaker as valuations and other measures have become “frothy.” Reilly points to eight bubble indicators, including valuation levels, earnings behavior, index concentration, equity issuance and foreign demand for U.S. stocks. Earnings are flagged as the biggest warning sign, with S&P 500 earnings growth expectations near levels seen at the dot-com peak. He expects the S&P 500 to climb from about 7,650 to 8,250 by end-2026, before falling to 6,500 by end-2027.