A market strategy chief at a London-based investment bank has issued a dire warning to investors: the artificial intelligence trade may be nearing its end, potentially setting off the most devastating market downturn since the global financial crisis.

Global equities have climbed to all-time highs this year, partly driven by enthusiasm over skyrocketing investment in AI infrastructure. However, Panmure Liberum's Joachim Klement said his base scenario envisions that trade falling apart as early as 2027, dragging stocks significantly lower.

"My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years," Klement said in an interview. He noted that hyperscalers' free cash flows are largely exhausted, while debt costs are climbing rapidly and becoming prohibitive for these companies.

Klement's year-end 2027 target of 5,000 points for the S&P 500 implies 36% downside from current levels. That is by far the most bearish among seven other strategists tracked by Bloomberg, who on average anticipate potential upside of 14%. Klement expects Europe's Stoxx 600 to drop to 430 points, more than 30% below current levels.

The strategist, who began his career at UBS Group AG over two decades ago, is among the first to declare an end to the stock market's current bull run. As recently as mid-September, his key assumption was that the S&P 500 would reach 8,300 points by the end of next year.

His shift in perspective reflects concerns that persistent inflation and the accompanying surge in borrowing costs needed to finance investment could derail the boom in AI-related infrastructure.

That mirrors a warning this week from Temasek International's chief investment officer Rohit Sipahimalani that a reversal of the AI trade is a major risk confronting global markets.

Data-center capital spending by hyperscalers in 2026 could more than double from last year's level to reach $713 billion, according to Bloomberg Intelligence estimates. That figure is set to rise further next year, albeit at a slower pace, and has underpinned many projections for US tech companies' expected earnings.

"It is a situation where people are just focusing on one thing and one thing only, and that is earnings and in particular tech earnings," Klement said. "And they excuse every macro, credit or whatever headwind that you can come up with with that story."

Citigroup Inc. strategists say that solid 2027 earnings can support further gains for global equities, despite higher interest rates and geopolitical risk.

Klement acknowledges that his bearish call may be premature, and he remains the most bullish among survey respondents for the Stoxx 600 until the end of 2026, predicting gains of about 10% in the regional benchmark.

"I'm starting to worry people today for something that I think might happen in six to nine months," he said.

Rather than advising clients to sell now, the strategist recommends they develop contingency plans and timing tools that would help identify the onset of a crash.

His top recommendation is "to go full defensive" once the S&P 500 falls below the benchmark's 200-day moving average, a technical indicator that averages the index's closing price to help identify long-term market trends. In such a scenario, he advocates ultra-defensive sectors, including food, tobacco and pharmaceutical stocks.

"What I tell people is now is the time to prepare," Klement said. "Now is the time to make contingency plans for when the market goes into a bear market."