The AI trade that powered the market in 2026 is still alive, but the next leg looks less secure. S&P 500 earnings are on track to grow more than 30% this year, yet forecasts for 2027 call for a sharp step down to 16.3%, even as the index’s forward price-to-earnings ratio has already slipped to about 19, roughly 20% below its peak. That sets up a blunt question for investors: if the AI boom stops accelerating, can stocks keep climbing at the same pace?
The central concern is not that profits disappear. It is that the rate of change cools enough to puncture the market’s current narrative. According to Capital Economics, S&P 500 earnings are still on track for more than 30% growth in 2026, a powerful foundation for a bull market built on AI spending, cloud demand, and soaring chip investment. But the same forecast points to a drop to 16.3% in 2027, still roughly double the long-term average, yet far less explosive than this year’s pace.
That slowdown matters because the rally has become heavily reliant on a small group of companies and a narrow earnings story. The story by Joseph Adinolfi argues that the biggest threat to the AI bull market is not a sudden collapse in demand, but a deceleration in blockbuster earnings growth next year. If that happens, the market may not face a crash so much as a valuation reset. In a market priced for momentum, less momentum can be enough.
The concentration problem is easy to miss when index levels are still high and the AI theme remains dominant. Yet the earnings data show how much of the advance depends on a handful of names. Five companies — Nvidia, Micron, Broadcom, Sandisk, and Merck — are expected to drive 68% of total 2027 earnings growth, according to Dow Jones Market Data cited by MarketWatch. That is an unusually tight setup for a market that is supposed to be broadening out.
The risk is that if those companies merely meet expectations instead of beating them, the broader index has less of a cushion. The current market structure leaves little room for disappointment. Even with the forward P/E down to about 19, valuations are still tied to the idea that earnings will keep rising fast enough to justify the AI premium. If growth becomes more ordinary, the multiple may need to come down further.
Another warning sign is coming from the biggest names in the market. The Magnificent Seven is on track to report slower quarterly earnings growth than the other 493 S&P 500 companies for the first time since the bull market began in late 2022, according to FactSet’s John Butters, as cited by MarketWatch. That is a notable shift for a rally long dominated by a small cluster of mega-cap technology and AI-related stocks.
Nvidia remains central to the debate, and its shares still trade at a forward multiple in the midteens, roughly half its 2025 peak, according to MarketWatch. That lower multiple suggests some of the fever has already come out of the name. But it does not solve the bigger issue: if the earnings surge that justified the AI trade starts to fade, even cheaper valuations can look less compelling. The market has re-rated lower from extremes, but it has not yet priced in a prolonged earnings slowdown.
Not everyone is worried about earnings alone. Eddie Ghabour, co-founder of Key Advisors Group, says the debt market is a major constraint. “My biggest concern is directly tied to the debt market. With the cost of capital being so high, I don’t see how it’s possible to meet Wall Street’s expectations,” he said. His warning points to a basic tension in the AI boom: companies are still spending heavily on infrastructure, but funding that spending is not as easy or cheap as it once was.
Ghabour also said, “We’re starting to see some early signs of that, but I would say it’s not priced into the market.” That view aligns with the idea that investors are still assuming too much continuity in AI-driven capital spending and profits. If financing stays tight, the earnings lift from AI investment could slow even if corporate appetite for spending remains intact. The market may be looking at the size of the buildout without fully accounting for the cost of carrying it.
Goldman Sachs Research offers a similar warning, though it frames the issue in terms of earnings math rather than market psychology. Ben Snider, chief US equity strategist, said, “The AI investment boom has accounted for nearly half of S&P 500 earnings growth this year, and this tailwind should begin to fade next year even as capex spending continues to grow.” That is the key distinction for investors: spending can keep rising while the earnings boost from that spending gets smaller.
Goldman Sachs Research independently forecasts S&P 500 EPS of $415 in 2027 and $460 in 2028, with AI investment transitioning from a tailwind to a marginal drag by 2028. That is not a collapse story. It is a maturity story. The market can still grow, but the AI trade may shift from a source of easy upside to a less powerful contributor. For a market that has leaned hard on AI as an earnings engine, that transition could be enough to change sentiment.
The next test comes soon. Ongoing third-quarter 2026 earnings season will help confirm whether the slowdown in mega-cap earnings is already underway. Five of the Magnificent Seven had already reported and were generally below analyst expectations, according to MarketWatch, with the remaining reports still to come. If those names keep missing or merely meet estimates, it will strengthen the case that the market’s most important earnings engine is losing momentum.
January 2027 may be the bigger checkpoint. Companies’ full-year 2027 guidance will serve as a decisive reality check on whether the expected earnings growth is real or just optimistic modeling. That matters because the market is no longer trading only on what AI can do today. It is trading on what profits will look like after the current surge fades. If guidance disappoints, the debate will shift fast from AI enthusiasm to valuation discipline.
For now, the Nasdaq Composite has already sent a warning signal by finishing Friday’s session on the cusp of correction territory, defined as a drop of 10% or more from a recent high, as of the story’s publication in early November 2026. That does not confirm a broader breakdown. But it does show how fragile the AI-led advance can be when earnings expectations begin to drift lower. The bull market may not need a disaster to stumble. It may only need 2027 to look a lot less exciting than 2026.
