Capital Economics has identified a critical warning sign suggesting the artificial intelligence investment bubble may be approaching its breaking point. The research firm points to surging gross equity issuance—the volume of stock being sold by companies and purchased by investors—as a red flag historically associated with market bubble peaks.
According to Joe Maher, a markets economist at Capital Economics, gross equity issuance by non-financial US firms has reached levels comparable to or exceeding those seen during the dot-com bubble, the period preceding the 2008 Great Financial Crisis, and the pandemic stock rally. This pattern has traditionally preceded major market corrections.
“One warning sign that a bubble is close to bursting is high and rising gross equity issuance,” Maher explained in a recent client note. The concern is that excessive share issuance could eventually overwhelm investor appetite for stocks, potentially triggering a downward price spiral.
However, the situation contains nuances that complicate the analysis. When adjusted for historically high stock valuations, equity issuance appears less extreme. Additionally, corporations have been conducting large-scale stock buybacks, keeping net equity issuance in negative territory overall. Maher noted that net equity issuance typically turns positive around the time market rallies peak, calling it a “harbinger” of a rally reaching its climax.
The potential 2025 IPOs of major AI companies including SpaceX, OpenAI, and Anthropic could push net equity issuance into positive territory, further elevating bubble concerns. Maher also highlighted that many tech firms are increasingly tapping private capital markets, suggesting that warning signs of an AI bubble burst may emerge in private markets before becoming visible in public exchanges.
Despite these concerns, most Wall Street forecasters predict continued market gains in 2026. However, investor anxiety about a potential stock bubble has been mounting given the market’s extraordinary returns in recent years. Capital Economics has consistently predicted a tech stock bubble burst in 2026 for several consecutive years, maintaining their cautious stance on AI-driven market valuations.
Key Quotes
One warning sign that a bubble is close to bursting is high and rising gross equity issuance
Joe Maher, markets economist at Capital Economics, identified this pattern as a critical indicator that the AI investment bubble may be nearing its peak, drawing parallels to previous market crashes.
There are myriad of reasons why these rallies faltered, but one factor may have been that surging share issuance eventually overwhelmed investors’ appetite for stocks, helping to push stock prices lower
Maher explained the mechanism by which excessive equity issuance has historically contributed to market corrections, suggesting the same dynamic could affect AI stocks.
With a rising share of issuance taking place in private markets, warnings signs that the AI bubble is close to bursting may also emerge there
Maher highlighted that private market activity, where many AI companies are raising capital, could provide early warning signals of a broader market correction before it becomes visible in public markets.
Our Take
The Capital Economics warning deserves serious attention, though the AI bubble narrative has been premature before. What’s particularly noteworthy is the dual-market concern—both public and private equity issuance are elevated. The anticipated IPOs of OpenAI, Anthropic, and SpaceX represent a critical inflection point that could test market appetite for AI investments. However, unlike the dot-com era, today’s AI leaders are generating real revenue and demonstrating tangible applications across industries. The key question isn’t whether AI is overhyped, but whether current valuations accurately reflect the timeline to profitability. A correction wouldn’t necessarily invalidate AI’s transformative potential—it might simply reset expectations to more sustainable levels, potentially creating buying opportunities for long-term investors focused on fundamental value rather than speculative momentum.
Why This Matters
This analysis carries significant implications for the AI industry and broader technology sector. The comparison to historical bubble peaks—particularly the dot-com crash—suggests that the current AI investment frenzy may be reaching unsustainable levels. For businesses heavily invested in AI infrastructure and development, a market correction could impact funding availability, valuations, and strategic planning.
The warning is particularly relevant given the massive capital expenditures tech giants like Microsoft, Google, and Amazon are making in AI infrastructure. If equity markets cool, these companies may face pressure to justify their AI investments more quickly, potentially accelerating the timeline for AI monetization.
For workers in the AI sector, a bubble burst could mean reduced hiring, slower salary growth, and increased pressure to demonstrate ROI on AI projects. The potential IPOs of OpenAI, Anthropic, and SpaceX represent a critical test—if these offerings underwhelm or flood the market with supply, it could trigger broader reassessment of AI valuations across the sector.
Related Stories
- Meta and Nvidia Billionaires’ Wealth Soars $152B in AI Boom
- Google Founders’ $511B Fortune Soars on AI Breakthrough Success
- Global Funds Turn to Indian Stocks as Hedge Against AI Risks
- Groq Investor Warns of Data Center Crisis Threatening AI Industry
- CEOs Express Insecurity About AI Strategy and Implementation
Source: https://www.businessinsider.com/ai-bubble-stock-market-warning-equity-issuance-ai-tech-stock-2026-1