Fitch Ratings says an AI-led market collapse could send U.S. share prices down 35% over six months and push the economy into recession, as American growth becomes increasingly dependent on technology spending.
The ratings firm modeled the outcome as a severe downside scenario, not its forecast. It combined the market selloff with a 15% decline in overseas stocks and a sharp retreat in AI investment and business confidence.
What Fitch’s Scenario Shows
U.S. GDP would contract 0.6% in 2027, with year-over-year growth falling to negative 1.5% in the second quarter. Private capital spending would drop more than 6%.
Global growth would fall below 1%, a level Fitch said would signal stagnation. Canada and Mexico would suffer GDP hits exceeding 2%, while China and the eurozone would each lose around 0.8 percentage point of growth.
Fitch’s model assumes the Federal Reserve cuts interest rates by 325 basis points in response to the downturn.
For scale, a 35% decline from Wednesday’s S&P 500 close of 7,636 would take the index to roughly 4,960. The SPDR S&P 500 ETF Trust (NYSE:SPY) tracks the index.
AI Spending Raises the Stakes
The stress test comes as AI investment carries more of the U.S. economy. Fitch said information technology investment contributed 1.4 percentage points to annualized first-quarter growth.
Combined capital spending by four of the largest U.S. technology companies is projected to exceed $700 billion this year, according to Fitch. A sudden pullback could hit equipment suppliers, construction activity and hiring alongside stock prices.
What Prediction Markets Say
Prediction market traders put low odds on anything resembling that collapse. Polymarket priced its year-end AI bubble-burst contract at 13% Thursday, with almost $3 million traded.
The contract requires three of six triggers within a 90-day window. Those include Nvidia Corp. (NASDAQ:NVDA) falling 50% from its all-time high, the iShares Semiconductor ETF (NASDAQ:SOXX) dropping 40%, or another major chip stock losing half its value.
A 35% marketwide rout would likely bring several of those thresholds into play. However, Polymarket could also resolve "Yes" without the S&P 500 falling that far, while its Dec. 31 deadline is shorter than Fitch’s six-month scenario.
Fitch’s warning also clashes with Wall Street’s more optimistic outlook. Barclays recently raised its year-end S&P 500 target to 7,950, betting that earnings growth and continued AI spending can extend the rally.
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