The head of market strategy at a London investment bank has a stark warning for investors: the artificial-intelligence trade may soon be over in what could trigger the most severe market crash since the global financial crisis.

Equities have powered to record levels across the globe this year, fueled in part by optimism over surging spending on AI infrastructure. But Panmure Liberum’s Joachim Klement said his base case is for that trade to disintegrate as soon as 2027, sending stocks sharply lower.

“My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years,” Klement said in an interview. Hyperscalers’ free cash flows are largely depleted, while the cost of debt is rising quickly and becoming prohibitive for these firms, he said.

Klement’s 2027 year-end target of 5,000 points for the S&P 500 implies 36% downside from current levels. That’s by far the most bearish of seven other strategists tracked by Bloomberg, who on average look for potential upside of 14%. Klement sees Europe’s Stoxx 600 falling to 430 points, more than 30% below current levels.

The strategist, who started his career at UBS Group AG more than two decades ago, is among the first to call an end to the stock market’s current bull run. As recently as mid-September, his key assumption was that the S&P 500 would hit 8,300 points by the end of next year.

His change of mind reflects concern that stubborn inflation and an associated surge in the cost of borrowing needed to fund investment could derail the bonanza in AI-related infrastructure.

That echoes a warning this week from Temasek International’s chief investment officer Rohit Sipahimalani that a reversal of the AI trade is a key risk facing global markets.

Data-center capital spending by hyperscalers in 2026 could more than double from last year’s level to hit $713 billion, according to Bloomberg Intelligence estimates. That number is set to increase further next year, albeit at a slower pace, and has underpinned many of the projections for US tech companies’ projected earnings.

“It is a situation where people are just focusing on one thing and one thing only, and that is earnings and in particular tech earnings,” Klement said. “And they excuse every macro, credit or whatever headwind that you can come up with with that story.”Citigroup Inc. strategists said this week that solid 2027 earnings can support further gains for global equities, despite higher interest rates and geopolitical risk.

Klement acknowledges that his bearish call may be premature and he remains the most bullish among Bloomberg-tracked strategists for the Stoxx 600 until the end of 2026, predicting gains of about 10% in the regional benchmark.

“I’m starting to worry people today for something that I think might happen in six to nine months,” he said.

Rather than advising clients to sell now, the strategist advises they develop contingency plans and timing tools that would help identify the start of a crash.

His number one recommendation is “to go full defensive” once the S&P 500 drops below the benchmark’s 200-day moving average, a technical indicator that averages the index’s closing price to help identify long-term market trends. In such a case, he advocates ultra-defensive sectors, including food, tobacco and pharmaceutical stocks.

“What I tell people is now is the time to prepare,” Klement said. “Now is the time to make contingency plans for when the market goes into a bear market.”