How markets could topple the global economy

Subscribe to enjoy similar stories. IF AMERICA’S stockmarket crashes, it will be one of the most predicted financial implosions in history. Everyone from bank bosses to the IMF has warned about the stratospheric valuations of America’s tech companies.

Central bankers are bracing for financial trouble; investors who made their names betting against subprime mortgage bonds in 2007-09 have resurfaced for another “big short". At any sign of a wobble, such as a recent slight weekly fall in the NASDAQ index of tech stocks, speculation mounts that the market is on the precipice. And no wonder.

The cyclically adjusted price-earnings ratio of the S&P 500 index of stocks, propelled by the “magnificent seven" tech giants, has reached levels last seen during the dotcom boom. Investors are betting that the vast spending on artificial intelligence (ai) will pay off. Yet the numbers are daunting.

For companies to achieve a 10% return on the AI capex projected by 2030, they will collectively need $650bn of annual AI revenues—equivalent to over $400 per year from every iPhone user, reckons JPMorgan Chase, a bank. History shows such lofty expectations are often disappointed, at first, by new technologies, even if they go on to change the world. Read the rest of our cover package Yet although a market crash would surprise almost nobody, few have thought about its consequences.

That is partly because the chances of a big fall in stockmarkets bringing about a broad financial crisis are, for now, slim. Unlike in the late 2000s, when widespread leverage and complex financial engineering helped cause a debt-fuelled bubble in subprime housing, today’s AI euphoria has been mostly equity-financed. What is more, the real economy has shown in recent