WisdomTree's Jeremy Siegel warns the Nasdaq Composite could fall 30% if AI spending fails to deliver expected returns. The warning highlights growing concerns over financing risks and concentration in AI-linked tech stocks.
WisdomTree’s Jeremy Siegel has issued a stark warning that the Nasdaq Composite could decline by as much as 30% if artificial intelligence investment fails to generate the expected returns. According to recent reports, this risk is intensifying as financing concerns grow around the sector. The caution arrives on the 39th anniversary of Black Monday, a date that underscores the market’s ongoing test of whether AI can sustain its momentum.
The core of Siegel’s concern is concentration risk, which occurs when a few large companies or themes dominate an index’s value. Because the Nasdaq is heavily weighted toward AI-linked technology stocks, a shift in sentiment regarding that theme can significantly move the entire index. Siegel has repeatedly flagged risks in AI capital spending, drawing comparisons to past market episodes where real demand existed but excess capacity later compressed returns for the largest spenders. This historical precedent makes the current debate difficult to dismiss among market analysts.
Market volatility in the week leading up to this warning was driven by several factors, including concerns over AI financing and hyperscaler debt issuance. Elevated oil prices, higher yields, and a spike in the VIX also added pressure to the market. The Nasdaq Composite closed Friday at 26,140 after a 2.15% drop, marking its worst week since June with a decline of roughly 4.5%.
Despite this recent pullback, the broader market has shown resilience in other areas. The Nasdaq 100 recently closed a day up 1.1%, posting its best performance since September 21, while the S&P 500 added $300 billion in market cap on that same day. However, experts note that the disconnect between index performance and individual stock health remains a point of contention. Wall Street veteran Larry McDonald has argued that the market has "crashed internally," with many Hall of Fame brands suffering significant declines even as index funds remain healthy due to passive investment flows.
Further complicating the outlook, WisdomTree’s Siegel and other experts warn that the heavy reliance on AI-linked enthusiasm and a narrow group of mega-cap leaders creates a fragile foundation. If AI spending does not translate into tangible earnings growth, the potential for a sharp correction remains a significant risk for investors navigating the current economic landscape.