AI Bull Run Countdown? Wall Street Tech Veteran: This Year Feels Like 1997/98, Next Year Could Drop 30-50%

Original Author: Long Yue

Original Source: Wall Street CN

The current market looks eerily similar to 1997-1998 – a Wall Street tech veteran is already counting down to the end of the AI bull run.

On May 11, Dan Niles, a renowned chip analyst from the dot-com bubble era and founder of Niles Investment Management, laid out his assessment of the current AI market in an interview with The Master Investor Podcast. His view: the AI bull market isn't over yet, but he predicts a significant correction could hit in early 2027, and investors should start preparing now.

Meanwhile, a JPMorgan survey of 56 global investors found that 54% expect a correction of over 30% in the US stock market this year or next, with 45% predicting it will occur in 2027 – a view highly consistent with Dan Niles' forecast.

It's 1997-1998, Not 1999, and Certainly Not 2000

Niles likens the current environment to 1997-1998, not the peak of the dot-com bubble in 1999-2000 that many fear.

The logic is this: ChatGPT launched in late 2022, and AI infrastructure buildout is now entering its fourth year. In the internet era, the Netscape browser debuted in 1994, and 1997-1998 also marked the third and fourth years.

In 1997, the Thai currency crisis erupted, and the S&P 500 fell as much as 11% intra-year but closed the year up 31%. In 1998, Russia defaulted on its bonds and Long-Term Capital Management (LTCM) collapsed; the S&P 500's maximum intra-year decline was 19%, yet it still finished the year up 27%.

"At that time, the internet infrastructure buildout was the big backdrop holding things up, so every macro shock was a buying opportunity. It's the same today," Niles said.

He believes the oil price shock from the Iran war is a "man-made event," easier to resolve than the currency crisis or bond defaults of that era, and therefore sees this as a cyclical low point.

Agentic AI: The New Fuel Driving This Bull Run

Niles attributes the market's core driver this year to a single term: Agentic AI.

Simply put, previously you'd ask ChatGPT a question and get an answer – that's "conversational AI."

Agentic AI is fundamentally different. Dan Niles gives an example: "You can tell it, 'This is Wilfred. Go to the BBC website to get this data, go to Bloomberg to get that data, go to CNBC to get some other content, and then compile everything into an Excel spreadsheet.'" This series of actions requires massive parallel processing, consuming 10 to 100 times the compute tokens of conversational AI.

The data already proves this. In the two months before Open Claw's release on January 30, 2026, token growth was about 20%. In the two months after the release, token growth surged to over 120%.

This has directly boosted capital expenditure expectations for hyperscale cloud providers: at the start of the year, the market expected 2026 capex growth of around 30%; after Q1 earnings, that rose to 60%; and after the latest round of earnings, it climbed to 70%.

Niles' conclusion: This isn't a minor change; it's an order-of-magnitude leap sufficient to sustain further gains in AI-related stocks.

Hardware Landscape Shifts: CPU Rises, GPU Faces Pressure

The architectural characteristics of Agentic AI are quietly reshaping the competitive landscape for AI hardware.

Training large models involves repeating the same task – GPUs excel at that. Reasoning for conversational AI is also manageable. But Agentic AI requires simultaneously orchestrating multiple applications and coordinating multi-step tasks – it's essentially about "orchestration," which is a CPU's strength.

Dan Niles states: "In the past, it was roughly eight GPUs to one CPU. With the shift to Agentic AI, this ratio will move closer to 1-to-1."

This means Intel and AMD benefit, while for Nvidia, "it will marginally impact its stock performance."

But Semiconductors Are Severely Overbought

Dan Niles quickly pivots to caution: short-term risks cannot be ignored. "In the short term, the overbought condition in semiconductors is the most severe since before the major crashes in 2000 or 1995. That's certain."

He specifically notes that the semiconductor ETF has risen about 70% year-to-date and hasn't even been dented by the Iran war shock.

However, he emphasizes that short-term overboughtness doesn't invalidate the long-term thesis – the computational demand from Agentic AI is real. He's willing to tolerate a potential short-term drop of 15-20% in Intel because he believes the stock will trade higher by year-end.

Where Will the 30-50% Correction in 2027 Come From?

Dan Niles is already scenario-planning for the next cycle.

The explosion of Agentic AI began on January 30, 2026. Based on that, by early 2027, growth will start comparing against a high base, and the rate of growth will naturally decelerate significantly. What happens to the market then?

"I think these stocks could fall 30% to 50% from their then-elevated levels," he says.

A useful reference point is right in front of us: in 2022, the "Magnificent Seven" tech stocks fell an average of 46% – and that was just the aftermath of the pandemic-era tech buildout, a wave far smaller than the current AI boom.

Another potential trigger is OpenAI. Dan Niles points out that OpenAI and Anthropic together account for roughly half of the backlog orders for hyperscale cloud providers. Their combined annualized revenue has gone from about $70 billion in early 2025 to nearly $700 billion today (around $450 billion for Anthropic, $240 billion for OpenAI) – impressive growth, but this money must be squeezed from other companies' budgets.

"When OpenAI had annual revenue of just $20 billion, it was publicly committing to $1.4 trillion in capital expenditures over the next eight years. Where does that money come from? If OpenAI encounters problems, it will greatly accelerate this process."

He also points to a structural liquidity pressure: IPOs from companies like OpenAI, SpaceX, and Anthropic are imminent, each potentially valued at over a trillion dollars. "This money has to come from somewhere. Fund managers aren't sitting on piles of idle cash. They have to sell other things."

Three Signals Flashing Red: Stocks, Oil, Bonds – One Must Be Wrong

Every morning, Dan Niles' first task is to simultaneously look at oil prices, bond yields, and the stock market.

The current combination makes him uneasy: stocks are at all-time highs, oil prices are up about 60% year-to-date, and both the 10-year and 30-year US Treasury yields are at their year-to-date highs.

Historically, 10 out of the past 12 recessions were preceded by sustained rises in oil prices. If oil stays around $90 for one or two quarters, inflation will re-emerge, consumer purchasing power will erode, and a significant stock market correction becomes inevitable. McDonald's recent earnings mentioned pressure on low-end consumers and same-store sales falling short of expectations – these signals are starting to appear, and you have to be worried.

He also notes that incoming Fed Chair Kevin Warsh is leaning towards rate cuts and views AI as a deflationary force, "which is a positive factor pushing the market higher in the short term." But he warns that if 10-year or 30-year yields continue to climb, market valuations will face real pressure. His conclusion:

One of the three – stocks, oil, bonds – must be wrong. When one reprices, it could trigger significant market turmoil.

His advice is simple: "You should be holding a lot of cash right now. – At the end of March, I thought it was a good time to be aggressively buying. But now, I think you should be holding a lot of cash and be highly vigilant for the ultimate resolution."

JPMorgan: 54% of Institutional Investors Expect a Major Correction in 2027

Dan Niles' warning is not an isolated one.

A roadshow feedback report published by JPMorgan's Global Markets Strategy team on May 12, 2026, shows that analyst Eduardo Lecubarri and his team visited five cities in Latin America and spoke with 56 institutional investors.

Key data from the report includes:

• 92% of surveyed investors expect positive stock market returns for the full year 2026, but none expect gains to exceed 20%;
• 54% of surveyed investors expect a stock market correction of over 30% sometime in 2026 or 2027 (9% expect it in 2026, 45% expect it in 2027);
• 75% of surveyed investors believe there is still more than 20% upside from current levels before the tech bubble peaks;
• In terms of regional allocation, sentiment towards Europe is overwhelmingly unanimous – 100% are underweight Europe, 100% are overweight the US;
• Investors' most favored sectors are Technology, Utilities, and Industrials, in that order.

This aligns remarkably well with Dan Niles' "1998 logic": the bull market is far from over, but the timeline for a major correction is quietly forming within market consensus.

Quantum Computing: Huge Potential, But Don't Rush

At the end of the interview, Dan Niles also touched on quantum computing. He is a firm long-term believer. "I'm a big believer in quantum. I think we will get there eventually," he says – but he invokes Bill Gates' famous quote: technology is often overestimated in the short term and underestimated in the long term.

"The earliest AI papers were written over 50 years ago. When did ChatGPT appear? Late 2022. Quantum computing will likely follow a similar path. Upcoming quantum IPOs will bring market attention back, but truly disruptive applications will take longer than most people think."

Big Tech Divergence: Google in a League of Its Own

The tech giant earnings reports over the past few weeks have sharpened Dan Niles' assessment.

Google Cloud: Q4 year-over-year growth was 48%; it accelerated to 63% in the latest quarter – a 15 percentage point acceleration.

AWS: Growth accelerated from 24% to 28%, a 4 percentage point increase – respectable for the largest cloud provider.

Microsoft Azure: Growth edged up from 38% to 39%, essentially flat.

"These numbers tell you who is truly executing and who is gaining market share," Dan Niles says.

He gives a direct verdict: "Over the next 3 to 5 years, which big tech company is the best bet? Clearly, Google. They have a full technology stack. You should put your bets on them. Unless something dramatic changes, they will remain the winners because they have everything and massive cash flow to support it."

Google's advantages include: its in-house large language model, Gemini; its self-developed AI chips (over a decade old, the longest track record among the three major cloud providers); strong cash flow supported by its advertising business; and the Android ecosystem, which powers over 75% of the world's smartphones. Microsoft relies on OpenAI and lacks its own large model. Amazon's AI products have limited brand recognition.

Meta's situation is relatively more concerning. Dan Niles points out that Meta has no public cloud to sell excess compute to external enterprises, and its progress on custom ASIC chips is behind. More importantly, Meta reported its first sequential decline in Family of Apps user numbers this quarter – for an ad monetization model driven by two growth engines (user numbers and average revenue per user), the former has already turned a corner, "and that's something to be worried about."

Regarding Apple, Dan Niles believes that the launch of an AI-powered Siri and a foldable iPhone will drive a replacement cycle. He cites the iPhone 6 as an example: when the screen size increased from 4 inches to 5.5 inches, Apple's revenue growth jumped from 7% to 28%.

Stay Nimble, Don't Be Greedy

Dan Niles summarizes his market philosophy in one sentence: "Be nimble. Hold strong convictions, but hold them loosely."

His analytical framework: short-term momentum is upward, with Agentic AI and loose monetary policy expectations as the two main engines. However, by early 2027, these growth rates will be compared against high base effects, the explosive growth from Agentic AI will enter a period of softer comparisons, and combined with the potential risk from OpenAI and the liquidity impact from mega-IPOs, "stock prices could fall 30% to 50% from their then-peak levels."

What should you do now? Hold more cash. Keep a close eye on the three coordinates of oil prices, treasury yields, and the stock market every morning, and be ready to adjust at any time.