TS Lombard modeled what happens if the AI investment boom ends: U.S. stocks fall at least 30% and about $20 trillion in market value disappears. Even so, the firm expects only a mild U.S. recession and advises investors to stay invested in diversified global stocks.
TS Lombard's Dario Perkins models U.S. stocks falling at least 30% if the AI investment boom ends, which wipes out about $20 trillion in market value. The report lands after the Nasdaq Composite closed October with its worst month since March 2025.
Perkins writes that the recent market wobble may be the beginning of the end or may blow over, and the report does not claim to know which.
What the crash scenario looks like
In the scenario, the S&P 500 falls at least 30%, with tech down 40% and other sectors down 20%. The report puts losses on AI-related debt, including private credit, at $125 billion to $190 billion.
Perkins said in the report that "the AI crash scenario is now overdetermined". The weakest links are AI cloud providers such as CoreWeave and Oracle, stand-alone model developers like OpenAI and Anthropic, and construction and equipment suppliers.
The financing worry behind it
The report's central concern is how the buildout is paid for. AI labs sign contracts promising to pay for computing power they haven't yet used, and the cloud provider or hyperscaler borrows against that promise to build the data center.
The numbers are large. U.S. tech companies are investing around $1 trillion a year, and AI companies are expected to issue around $700 billion in new bonds in 2027. Hidden liabilities from off-balance-sheet structures are estimated at $1.5 trillion to $2 trillion, and CoreWeave is already paying 15% interest.
A mild recession, not 2008
TS Lombard expects only a mild U.S. recession, comparable to 1990 or 2001, because the Fed has room to cut rates and private-sector balance sheets are healthy. It estimates the crash would cut about 2 percentage points from the level of U.S. GDP.
Its advice is to hold a normal amount of risk through a diversified portfolio of global stocks and not to bet against tech too early. The firm would add government bonds only once signs of fragility emerge, and its working assumption is a reversal in early 2028, a date it says could slip.
Source: The Motley Fool
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