New Delhi [India], October 18 (ANI): Artificial intelligence could remain a transformative technology while triggering a significant market correction if productivity gains fail to keep pace with investment, Peter Berezin, Chief Global Macro Strategist at BCA Research, said during a discussion on the global macroeconomic and cross-asset outlook with brokerage firm Emkay Global.
Berezin remains constructive on AI’s long-term potential but sees growing risks from overcapacity, margin compression and the possibility that the investment cycle eventually turns, with implications for equities, bonds, currencies and commodities.
“The core risk is financial and about timing, rather than AI failing technologically,” Berezin argued, warning that the returns from AI adoption may arrive too slowly to justify the scale of current capital expenditure. The five largest hyperscalers are expected to spend more than $1 trillion next year, while the broader AI industry could require approximately $10 trillion in annual revenue to monetise projected investment, based on his assumptions.
The accounting dynamics are also supporting corporate profitability in the near term. Chipmakers recognise revenue and profits when they sell equipment, while hyperscalers capitalise AI infrastructure spending and depreciate it over time. Berezin warned that this divergence could obscure the pressure on returns as depreciation costs rise and competition erodes margins.
Despite these concerns, Berezin does not believe the equity bull market has ended. “The equity bull market is mature rather than over,” is the central message of his near-term outlook. He expects consolidation and greater volatility before a more material downturn, noting that equity markets have historically peaked six to 12 months before capital expenditure reaches its high point. While a US recession in 2027 appears unlikely in his assessment, 2028 presents a more significant risk, potentially accompanied by a Nasdaq drawdown of around 50%.
The cross-asset implications extend beyond the US. Berezin believes China is unlikely to offset a US slowdown, given weak domestic demand, persistent property-sector weakness and manufacturing overcapacity. He remains neutral on equities and bonds in the near term but expects to become more constructive on US duration as the investment cycle approaches its peak. Real yields near 3% already offer attractive carry, he noted.
The dollar could retain near-term strength, although external imbalances pose longer-term headwinds. Berezin also favours industrial metals over oil over the longer term and remains structurally bullish on gold, while identifying inflation-protected securities, biotechnology and food security as areas worth watching.
For investors, the key challenge is distinguishing AI’s long-term economic promise from the near-term financial risks of an investment boom that may have moved ahead of its eventual returns, according to Berezin. (ANI)
AI Investment boom raises cross-asset risks as capex cycle matures, says BCA research strategist
