George Noble, a former Fidelity fund manager, has warned that a potential collapse of the AI sector could inflict damage up to 17 times worse than the dot-com crash, which wiped out around $5 trillion from the Nasdaq.

Current Market Sentiment

Recent data from Polymarket indicates that traders have raised the odds of an AI bubble bursting in 2026 to over 17%. This figure has fluctuated recently, dropping from 30% to as low as 14%. Various contracts assessing different criteria for resolution suggest a likelihood ranging between 16% and 24%. Analysts attribute the rising concerns to a decline in technology stocks, diminished revenue projections, and growing instability in global markets.

Noble emphasized that the substantial capital flowing into AI infrastructure presents a significant risk. He stated, “The fallout from this could really be much more significant,” referring to the surge in AI investments and potential failure to realize expected returns.

Impact on Technology Stocks

Recent trends show fresh pressure on semiconductor and technology shares, with DeepSeek's major price drop serving as a prime example of fluctuating valuations in the sector. The Wall Street Journal reported a decline in U.S. stock futures as anxiety over AI investments spread from Asian markets. South Korean giants SK Hynix and Samsung Electronics saw their stocks drop nearly 9%, as investors doubt whether the revenue from AI services will adequately cover the growing costs of industry expansion.

In another troubling sign, IBM experienced its sharpest single-day drop since 1968, plummeting almost 25% earlier this week. The company’s stock closed at $211.20 on Wednesday, marking a total decline of over 26% across several trading sessions. IBM attributed this downturn to AI infrastructure spending diverting funds from software budgets, adversely affecting expected revenue growth.

A recent report from the U.S. Treasury also examined the implications of a potential downturn in AI, highlighting its increasing interconnectivity with the wider U.S. economy compared to the internet companies of the dot-com era. The report suggests that if productivity or profits from AI fail to meet expectations, various sectors such as private credit, chipmakers, and cloud services could face severe repercussions.

This material is for informational purposes only and does not constitute financial advice.