I Asked ChatGPT What Will Happen To the Stock Market If the AI Bubble Bursts

Artificial intelligence (AI) is not just infiltrating everyday lives; it has been the driving force behind stock market gains for the past two years. From chipmakers to software, anything tied to AI has surged. But investors are starting to wonder what happens if the momentum slows and the market decides AI valuations have gone too far. While no one can predict the future, I asked ChatGPT to look more deeply into the history of stock market bubbles and what might happen if the AI bubble were to burst.

Here are its predictions.

A correction in AI stocks would not just be another bad day for tech, ChatGPT warned. Because a handful of companies, including Nvidia, AMD, Microsoft, Alphabet and Meta, now make up such a large percentage of the S&P 500, their movements shape the entire market.

If the market decides these large AI players are overvalued, those big company stocks will be the first to see a rapid decline as well as any company heavily tied to AI infrastructure, ChatGPT said.

Because these companies now make up a huge share of the market, a correction in even a handful of them could lead to a fall in both the S&P 500 and Nasdaq. This could lead to an environment similar to the dot-com bubble burst of the early 2000s.

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If the AI market trend reverses, the entire stock market index would likely follow, ChatGPT said. We could be looking at a broad correction of 10% to 20% if sentiment turns and investors begin to question AI revenue projections.

Not all sectors would be hit equally, however. What tends to happen during sector slowdowns is that investors rotate their money into other areas like utilities, healthcare and consumer staples, ChatGPT noted. That means companies with steady earnings and predictable cash flows tend to look attractive. Thus, investors with diversified portfolios would be less affected than those concentrated in a single theme.

The ripple effects of an AI market correction would also have an impact on startups. Venture funding has been pouring into AI startups with the assumption that adoption will keep accelerating, ChatGPT said. If the market “gets skittish,” these valuations could fall as quickly as public tech stocks. That means less hiring, more consolidation and a good chance that many AI startups might fail.

Larger companies with strong balance sheets would likely scoop up talent or intellectual property, however, again similar to what happened after the dot-com bust. For workers and entrepreneurs, this could hit hard.

The good news for investors is that a complete collapse similar to 2000 or 2008 is much less likely. Many AI companies today generate revenue that’s grounded in other profitable business products or services outside of AI. Nvidia, Microsoft and Amazon have the funds and the services to withstand a downturn. In the dot-com era, many companies going public had no profits or even customers. ChatGPT said “the fundamentals today are stronger.”

While an economic crisis is not likely coming, a sharp correction in AI stocks is more likely than not, ChatGPT said. It pointed out that “high-growth sectors tend to overshoot,” and the enthusiasm around AI has created valuations that may be more speculative than accurate in certain areas. A moderate pullback of 15% to 30% in leading AI names would not be surprising.

It did say that a complete bubble collapse is less likely, however. AI already has real commercial value, and early gains are showing up across industries. Just like the early days of the smartphone, there may be volatility, but the long-term trajectory remains positive.

Everyday investors should expect volatility. The smartest bet is to keep a diversified portfolio, balanced allocation and long-term time horizon to have the best protections.

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