The explosive surge in artificial intelligence investment may be heading toward a cooling period, with BCA Research cautioning that an industry-wide “AI winter” is becoming increasingly probable in the near future.
In a report published Wednesday, BCA chief strategist Jonathan LaBerge said AI spending is entering a fragile phase, with current market valuations reflecting expectations that far exceed what the technology is likely to deliver.
“Over a three-to-five-year time horizon, the balance of probabilities points to the emergence of an ‘AI Winter,’ likely beginning over the next one-to-three years,” LaBerge wrote.
He added that such a downturn “would involve a slowing in the pace of AI-related CAPEX/data center construction, as well as a meaningful correction in tech/growth stock prices.”
Three long-term scenarios for AI
BCA outlines three potential trajectories for AI’s long-range impact. A full artificial general intelligence breakthrough—one that would validate the most optimistic narratives in the sector—receives only a 5% probability.
Instead, the firm assigns an 80% chance to a scenario in which AI produces “moderate macro-level productivity gains,” lifting economic output by roughly 0.4–0.5% per year. While positive, that level of improvement would fall short of the lofty profit and cash-flow expectations currently embedded in major tech stocks.
A more bearish outcome—a severe misallocation of data center capital followed by a productivity slump—is given a 15% likelihood.
Market expectations appear overextended
LaBerge argues that U.S. equity markets have already priced in a far more transformative AI payoff. He estimates that between $9 trillion and $12 trillion of market gains since late 2022 cannot be justified by fundamentals such as earnings or interest rates.
That disconnect, he said, reflects investor belief in a long-lasting AI-driven productivity surge much stronger than what BCA considers realistic.
The strategist further cautioned that “it is not enough for artificial intelligence to be productivity enhancing: It needs to boost productivity growth / corporate profits very significantly for current pricing of the overall equity market to be justified.”
Stress signals emerging in AI adoption and financing
BCA notes that business adoption of AI tools has begun to slow even as companies continue ramping up capital expenditures. Meanwhile, the industry is increasingly relying on debt financing to build out data centers, with hyperscalers and infrastructure providers issuing large volumes of bonds.
LaBerge said this trend echoes earlier overbuild cycles—such as telecom in the early 2000s and U.S. shale in the 2010s—where investment eventually outpaced demand.
Another point of concern is the capital-intensive structure of the AI boom. Unlike the relatively asset-light rise of the early internet, AI requires ongoing spending on chips, energy, networking hardware, and cooling systems. According to LaBerge, this raises the risk of a future “compute glut” and threatens returns for companies whose valuations already assume steep and sustained growth.
BCA’s guidance for investors
The research firm suggests preparing for a gradual reset in expectations. It recommends underweighting tech-focused names relative to the broader market until stretched valuations normalize.
BCA also argues that companies adopting AI—rather than those building or monetizing AI infrastructure—may fare better during a cooling phase. Industries such as financials, pharmaceuticals, biotechnology, life sciences, and defense could be among the biggest beneficiaries of practical AI integration.