Analysts and investment strategists on Wall Street are issuing a warning that the current US stock market is not only facing an asset price bubble but also a corporate "earnings bubble" fueled by the artificial intelligence (AI) frenzy. Experts highlight that this "double bubble" structure is highly unsustainable, and a potential burst could trigger a severe market correction of 30% to 50%.

Recently, driven directly by the surge in AI-related stocks, major US indices like the S&P 500 have once again reached record highs. Countering the view from bullish commentators that a declining forward price-to-earnings ratio suggests the market remains attractive, several research institutions point out that this nominal decline is not due to reasonable valuations. Instead, it stems from Wall Street analysts rapidly and abnormally raising their earnings-per-share forecasts for companies over the next 12 months. Data research firm FactSet predicts that S&P 500 constituent companies are on track for a seventh consecutive quarter of double-digit profit growth.

However, this high-growth trend has significantly diverged from the long-term logic supported by the real economy. In a newly released report, British investment bank Panmure Liberum notes that the S&P 500's cyclically adjusted price-to-earnings (Shiller CAPE) ratio is currently at a high of approximately 41 times, nearing the historical peak seen 25 years ago during the dot-com bubble. Crucially, the current earnings-per-share growth rate for US-listed companies has deviated from its long-term trend by 1.8 standard deviations. The firm argues that if corporate profit growth were adjusted to normal levels, the S&P 500's Shiller CAPE ratio would actually balloon to 67.6 times. This figure would represent a deviation of 4.6 standard deviations from the long-term average, surpassing any previous peak in US asset bubble history. Joachim Klement, Chief Investment Strategist at Panmure Liberum, emphasizes that "extraordinary" profit windfalls cannot last indefinitely. As major tech giants transition their massive capital expenditures in areas like AI data centers from a light-asset to a heavy-asset operational model, a normalization of corporate earnings growth is highly probable.

Peter Berezin, Chief Strategist at independent macroeconomic research firm BCA Research, points out that this inflated earnings growth is highly deceptive for investors. A similar "earnings bubble" was observed in the banking and homebuilder sectors just before the 2007-2008 global financial crisis. Berezin notes that Wall Street analysts typically find it extremely difficult to predict the peak of an earnings bubble. However, historical precedent suggests that once sectors with typical boom-bust cycles, such as semiconductors, peak and trigger a bubble burst, the broader US stock market could experience a decline of 30% to 50%.

Furthermore, industry insiders including Andy Costan, CEO of macroeconomic advisory firm Damped Spring Advisors, and veteran Wall Street investment expert Jim Paulsen, have recently expressed public concern over the current excessively optimistic earnings forecasts. They argue that the current pace of US macroeconomic growth simply cannot support the aggressive corporate profit projections outlined by Wall Street analysts. Although the three major US stock indices closed higher again on Monday, with the Dow Jones Industrial Average finishing above 53,000 for the first time, analysts reiterate that the wide fluctuations in key sectors like semiconductors since June have already released warning signals of a potential near-term peak in market momentum.