Every man and his dog seems to be mentioning an upcoming stock market crash these days. The CEO of JP Morgan, Jaimie Dimon, spoke about his worries in an interview with the BBC. And the Bank of England warned of a possible “sharp correction” thanks to AI-related stock valuations.
How serious are these warnings? And where better to find the answer than straight from the source? Maybe we need AI to predict an AI stock market crash. I asked ChatGPT: “How serious are the concerns about an upcoming stock market crash because of AI? And when might it happen?”
Moderate-to-high
Before breaking down the response, it’s worth highlighting the unreliability of these large language models. Current AI is programmed to, among other things, tell the user what it thinks it wants to hear. Such a lack of concern for accuracy is not conducive to good stock market research. Therefore I take everything ChatGPT tells me with a supermassive grain of salt.
That said, the answer this time was drawn from specific sources, which I liked. It mentioned the MIT study that reported that 95% of organisations trying to use AI profitably failed to make a return on investment. It also quoted the CEO of Goldman Sachs who recently said he “wouldn’t be surprised if in the next 12 to 24 months we see a draw-down with respect to equity markets”.
Given this evidence, ChatGPT’s concluding answers was: “A plausible window is within the next one to two years — meaning sometime in 2026-2027 or possibly late 2025 – depending on triggers. But this is not a guarantee.” It also mentioned a “moderate to high” chance of a “meaningful correction of 30-50%” in that timeframe.
Just for fun, I did ask ChatGPT to take a stab at the date of a possible AI stock market crash. It played along with the “crystal ball game” and went for a “cheeky” speculative date of “Wednesday, September 17, 2026”.
Goings on
Whether an AI stock market crash comes on that date or not, I’m following investing principles that have stood the test of time. One of these, diversification, means I’ll never be overly exposed to a sector correction. It’s also one of the tips ChatGPT suggested in its answer.
One stock I hold and believe investors I think could consider for a diversified portfolio is Diageo (LSE: DGE). The firm is trading at 14 times forward earnings. That’s cheaper than the FTSE 100 average and very much cheaper than many tech stocks at present. A more reasonable valuation means there’s less room for the shares to fall, although they’ve already fallen sharply in recent periods.
It’s true that there’s pessimism around the drinks manufacturer at present. The introduction of weight loss drugs could be making people drink less alcohol. A generational shift away from beers and spirits might mean the youth of today won’t spend as much on alcohol as previous cohorts did.
If we’re in for some economic turbulence however, I expect Diageo will be one of the more insulated companies on the FTSE 100. Alcohol tends to thrive during recessions. And it’s far removed from any goings on in the AI sector.
