As the year draws to a close, investors are increasingly focusing on the outlook for next year, and most Wall Street analysts hold a very optimistic base of expectations. Statistics show that by the end of 2026, Wall Street's valuation of the S&P 500... The median forecast for the CSI 500 index target price is 7,500 points.
However, not everyone is so optimistic. Peter Berezin, chief global strategist at BCA Research and one of Wall Street's most prominent short sellers, recently warned that artificial intelligence , which has driven the US stock market bull run for the past two years, is at risk. The AI craze will "fade" in 2026, and large tech companies in the Nasdaq will drag down the entire US stock market.
Berezin's team's baseline expectation is that the AI boom will turn into a recession, with economic activity slowing down sharply.
The "decline" of AI
Specifically, they explained that the issue of overspending on artificial intelligence should be beyond question. They project that by 2025, U.S. investment in technology and software will reach 4.4% of GDP, almost as high as the dot-com bubble.
"Given that AI assets typically depreciate at around 20% per year, this means that hyperscale enterprises will face $400 billion in depreciation expenses annually, which is more than their total profits in 2025," they wrote in their latest report.
The company further noted that the assumption that AI would significantly boost tech company profits began to become highly volatile in early 2026 as AI adoption slowed.
"The technology has almost no network effects, limited economies of scale due to power and infrastructure requirements, and is becoming an extremely commoditized, capital-intensive industry where first-mover advantage is not particularly important," the report added.
Network effects, also known as network externalities or demand-side economies of scale, are an important concept in economics and business. They describe how, for a product (or service), each additional user creates new value for the other users of that product.
Deep impact
BCA Research further points out that the collapse of optimism surrounding artificial intelligence will hit the fragile stock market. By early 2026, the S&P 500's forward price-to-earnings ratio is projected at 22.6, well above the median of 18.
While the company acknowledges that valuation is not a good market timing tool, it adds that "valuation's role is to tell you how much a stock price might rise or fall when the market landscape changes." Just as the 2001 recession was more a result of the stock market crash than a cause, the market downturn in early 2026 will also impact the economy, and the wealth effect will begin to reverse.
The BCA estimates that for every dollar increase in stock wealth, consumption increases by 3 to 5 cents. American households hold $65 trillion in stock market wealth, and a 10% drop in the stock market could lead to a decline in consumer demand, approximately 0.8% of GDP.
The team believes that in early 2026, as investors shift from tech stocks to non-tech stocks and from growth stocks to value stocks, the stock market decline may be minimal. However, by the second half of 2026, "almost all sectors of the stock market will crash," as capital spending on artificial intelligence declines sharply and unemployment begins to rise rapidly.
"The final result is that the S&P 500 will close at 5280 points by the end of 2026, a decline of about 23% for the year," the report said.
(Article source: CLS)
