Why Might the U.S. Stock Market Crash Because of AI?

For months, the question haunting investors, analysts, and economists alike has been simple yet terrifying: Is the U.S. stock market heading toward a crash?
In October, American author and financial commentator Andrew Ross Sorkin warned during a CBS interview that a market crash was not a matter of if, but when. His words echoed through Wall Street like a storm warning before landfall.

Across the world, markets listened — because the U.S. stock market doesn’t crash alone. When it falls, it takes the global economy down with it. And the cause this time, according to many experts, could be the same force driving it to record highs: Artificial Intelligence.

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The AI Hype That Took Wall Street by Storm

From late 2022 onward, after OpenAI launched ChatGPT, investors began treating AI as the golden ticket to the future.
Companies linked to AI technologies saw their valuations soar to levels unseen since the dot-com era.

Between December 2022 and September 2025, the total market capitalization of U.S. stocks jumped from $40.5 trillion to nearly $68 trillion. That’s an astonishing increase of $27 trillion — more than the GDP of China and Japan combined.

But here’s the kicker: almost all that growth came from a single corner of the market — AI-related tech giants.
The so-called “Magnificent Seven” — Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia — have carried Wall Street on their backs. Together, these seven companies now represent over $20 trillion in market value. Nvidia alone reached a valuation above $5 trillion, fueled by AI optimism.

The question is: What if this optimism is misplaced?

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A Market Built on Faith, Not Fundamentals

To many observers, the U.S. stock market’s current behavior looks eerily familiar. It’s the same cocktail of hype, speculation, and blind faith that brewed the dot-com bubble in the late 1990s.

Today, instead of the internet, AI is the new religion.
Investors pour billions into companies that barely have a product, a plan, or even a business model.

Take Mira Murati, the former CEO of OpenAI, who launched her own startup Minds Lab in early 2025. According to The Information, Murati raised $2 billion in her seed round — despite offering investors no product demo, no roadmap, and almost no details about what the company actually does.

It was the largest seed-stage investment in history.
The logic? “If it’s AI, it must be worth it.”

That same logic now drives much of Wall Street. Investors have become so obsessed with AI’s potential that they’ve stopped asking the most basic question in finance: Where’s the profit?

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The Productivity Myth

AI, we are told, will revolutionize productivity.
Executives from OpenAI, Google, and Sequoia Capital have promised that artificial intelligence will transform the global economy faster and deeper than even the industrial revolution.

Sam Altman, OpenAI’s CEO, said in 2024 that he could easily imagine a world where AI performs 30–40% of all economic tasks in the near future.

It’s an inspiring vision — but data tells another story.

A 2025 study by researchers at MIT found that 95% of companies adopting generative AI saw no measurable improvement in profits or productivity. Another study from Harvard and Stanford explained why: employees often use AI tools to create redundant or “fluff” work — impressive-looking content that doesn’t actually add business value.

In other words, AI may generate more activity, but not more productivity.
That’s a dangerous mismatch for a market that’s betting trillions on AI being the engine of a new economic boom.

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When Valuations Defy Gravity

The stock market is often called the mirror of the economy — but right now, the reflection looks distorted.

While the S&P 500 has surged nearly 90% since 2022, much of the real U.S. economy hasn’t kept pace. Manufacturing output is flat, consumer debt is climbing, and productivity growth remains modest.

Yet AI-linked tech companies are trading at valuations that assume infinite growth.

OpenAI, for instance, reportedly plans to spend over $1 trillion in the next decade developing advanced AI models. But its current annual revenue — around $13 billion — is nowhere near enough to justify that kind of spending. Even worse, it’s losing roughly $8 billion per year in operating costs.

Seventy percent of OpenAI’s revenue comes from ChatGPT subscriptions — a product with over 800 million users, but only 5% paying customers. That means 95% of its audience generates zero income.

So how can such a company ever be worth the $1 trillion valuation it’s rumored to seek through an IPO?
The answer is simple: it can’t — unless AI turns into something it isn’t yet.

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Warnings from the Inside

Even Sam Altman himself has acknowledged that we are in an AI bubble. In a dinner conversation reported by journalist Alex Heath in mid-2025, Altman admitted that investor excitement had become “irrationally exuberant.”

His words were echoed by central bankers and international institutions.
In October 2025, the Bank of England warned of an “increasing risk of a sharp correction” in tech stocks tied to artificial intelligence. Just hours later, IMF Managing Director Kristalina Georgieva issued a similar warning, cautioning that inflated AI valuations could trigger a global slowdown if they collapsed.

Her message was clear: the world’s optimism about AI is running ahead of economic reality.

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A Fragile Economic Foundation

What makes today’s situation even more precarious than the dot-com era is the global context.

When the tech bubble burst in 2000, the U.S. government had room to respond. Debt levels were manageable, interest rates were higher, and policymakers had space for fiscal stimulus.

Today, that safety net is gone.
Public debt is at record highs, trade wars with China are escalating, and trust in U.S. institutions — including the Federal Reserve — is weakening. Meanwhile, the dollar’s dominance faces growing challenges from emerging markets and alternative currency systems.

If the AI stock market bubble bursts, the fallout could therefore be far more severe than the dot-com crash.

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What a Crash Could Look Like

Economist Gita Gopinath, former IMF chief economist and now at Harvard, estimates that if the U.S. stock market experiences a correction similar to the early 2000s, American households could lose around $20 trillion in wealth — roughly 70% of U.S. GDP.

Foreign investors would likely lose another $15 trillion, or about 20% of global GDP excluding the U.S.

The result? A synchronized global downturn, collapsing wealth across continents, and a sharp decline in consumer spending and investment worldwide.

And unlike past crises, the current global economy has fewer tools to contain the damage. Central banks have already used most of their ammunition through years of ultra-low interest rates and pandemic-era stimulus.

As The Economist wrote in an October 2025 piece titled “A Meltdown Like No Other,” the next crash won’t be “a mild or short-lived correction.” It will be deeper, broader, and harder to manage.

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How Did We Get Here?

To understand how the AI bubble inflated so quickly, one must look at investor psychology.

After years of market volatility, pandemic shocks, and inflation fears, investors were desperate for a new growth story. AI provided exactly that — a narrative of limitless innovation and unstoppable progress.

In an era where data and algorithms rule, it became almost heretical to question AI’s value. Every startup presentation, every pitch deck, every corporate strategy began with the same word: AI.

Investors feared missing out on the “next big thing.”
But as history shows — from tulips to dot-coms to crypto — markets driven by fear of missing out rarely end well.

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The Global Ripple Effect

If the AI bubble bursts, its impact won’t stop at Silicon Valley.

Global markets are tightly interconnected. A sharp drop in U.S. equities would immediately hit Asian tech suppliers, European financial institutions, and emerging market currencies.

China, already facing its own economic slowdown, could see capital flight intensify. Europe, with its heavy reliance on U.S. tech investment, might slide into recession.
And developing nations — the same ones that suffered most from rising interest rates and dollar strength — would again find themselves in crisis.

The AI crash, in other words, wouldn’t just be an American problem. It would be a global financial event.

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Could This Push the U.S. Behind China?

A growing number of economists believe that if an AI-driven crash occurs, it could mark a strategic turning point in the global balance of power.

While the U.S. economy has long relied on its tech sector as an engine of growth, China’s economy is more diversified in manufacturing, infrastructure, and raw materials.

If trillions in American wealth evaporate, the U.S. could find itself losing its economic edge — at least temporarily — while China consolidates its position as the world’s industrial powerhouse.

However, others argue that innovation remains America’s greatest strength. A crash might hurt, but it could also reset valuations and clear the way for a healthier, more sustainable tech ecosystem.

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Lessons from History

Every bubble begins with truth and ends in illusion.
The internet did change the world, but not every dot-com deserved its valuation in 1999. The same may be true for AI today.

Artificial intelligence will almost certainly transform industries, reshape labor markets, and drive new forms of value creation. But expecting that transformation to happen overnight — and pricing trillions of dollars of market value on that assumption — is a recipe for disaster.

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The Bottom Line

For now, the party continues. AI remains the hottest theme on Wall Street, and investors are still pouring money into anything that claims to harness its potential.

But bubbles never announce their end. They simply pop — often when optimism is at its peak.

If and when that happens, the AI stock market bubble could unleash one of the most devastating financial crashes in modern history. The U.S. will bear the brunt, but the rest of the world won’t be spared.

As The Economist warned:

“There is more wealth at risk today, and far less policy space to soften the blow.”

So while no one knows when the crash will come, the question that should keep investors awake at night is not whether AI will change the world —
but whether it will bankrupt it first.