Tech
Capital Economics Sees AI Capex Slowing Next Year and Falling in 2028, With the S&P 500 12% Lower by End-2027
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A Capital Economics note argues the AI spending boom has propped up US growth and stocks, and that a slowdown would drag on both.
By Emmanuel Cruz ·
After a week in which technology shares suffered their worst session in more than five years, a forecast from Capital Economics lays out how a cooling in artificial intelligence spending could ripple through U.S. growth, stock prices and Asian exporters.
Vicky Redwood, the firm's chief economic adviser, set out the view in a note released on a Friday, according to a Fortune report published Sunday, Nov. 8 [1]. She estimates that a handful of large technology companies will spend about $800 billion on AI-related capital investment this year, roughly double the previous year, and $1 trillion or more in 2027 [1]. Her forecast is that investment keeps rising next year but at a slower pace, then falls about 10% in 2028 [1].
The note ties that path to the broader economy. Redwood estimates that higher AI investment added about 0.3 percentage point to U.S. GDP growth last year, and that the stock-market rally of the past year lifted GDP by about 0.4% through its wealth effect [1]. A 10% capex decline could subtract about 0.1 percentage point from GDP, while slower growth in spending would trim about 0.3 point from the recent growth rate [1]. She expects slower growth in 2028 but not a major downturn, noting that capex declines alone have generally not caused recessions [1].
On equities, Redwood expects the S&P 500 to end 2027 about 12% below its current level, or 17% below its early-October peak, with "considerably larger falls" in tech-heavy indices [1]. Fortune reported that she also sees spillovers abroad: Taiwan's real GDP growth could be about 3 percentage points lower next year, and South Korea's about 1 point lower, with a further drag in 2028 [1].
Her argument rests on a revenue question. Redwood calculates that externally earned AI revenue would need to grow about tenfold by 2030 to justify current spending, which she regards as possible but one that would imply major economic disruption [1]. She also flags risks from higher energy prices or rising term premiums, which could tighten financial conditions and make it harder to finance investment [1].
The forecast arrives after a violent repricing. CoinDesk reported that in the U.S. session on Thursday, Nov. 5, the Nasdaq fell 5.5%, the S&P 500 4.3% and the Dow 3.4%, while the Nasdaq 100 dropped 6.4%, its worst session since the March 2020 pandemic panic [2]. The Philadelphia Semiconductor Index fell 12%, also its worst day since March 2020, and the session was the worst for U.S. stocks since the April 2025 tariff announcements [2]. Carlos Guzman, vice president of research at GSR, said the midterm elections appeared to have triggered the selloff, adding to existing worries about returns on AI spending [2]. Democrats gained control of both chambers of Congress in Tuesday's vote, and investors feared stiffer opposition to data-center expansion [2].
Redwood's baseline is less dire than the headline numbers suggest. She argues that capex may stay relatively high even as it declines, because companies keep spending to replace equipment, gain scale and compete, and that reductions may be spread over several years rather than arriving abruptly [1]. Projections of this kind are also inherently uncertain, and a single firm's estimate does not settle the debate over whether AI spending is excessive.
For markets, the note offers a framework for what to watch: guidance from the largest spenders on 2027 investment plans, signs of whether AI revenue is scaling, and the behavior of energy prices and long-term yields. Any change in those inputs would bear on both the technology sector and the economies of Taiwan and South Korea that supply it.
Sources:
[1] Fortune, "Stocks will tumble much further as AI investment will slow next year then fall in 2028 and drag GDP down too, economist predicts", November 8, 2026. https://fortune.com/2026/11/08/stock-market-outlook-sp500-ai-capex-gdp-growth-productivity/
[2] CoinDesk, "Bitcoin tumbles to $76,000 as collapsing AI trade drags stocks sharply lower", November 5, 2026. https://www.coindesk.com/markets/2026/11/05/bitcoin-crypto-stocks-caught-in-ai-trade-meltdown-but-wintermute-trader-sees-glass-half-full
This article was produced with AI assistance. It is for informational purposes only and is not financial advice. StockVolt and its authors may hold positions in securities mentioned.