There are two camps in the AI debate, and both seem to reach the same conclusion. One says AI will replace millions of jobs, which collapses the consumer spending those valuations were priced on. The other says AI is overhyped, which collapses the valuations directly. Either way, the stock correction will land.

I have no illusions that this helps anyone time the market, because with predictions the timing is almost always wrong. But even without the timing you can prepare. 

Know how gradual change usually works. It moves quietly for a long stretch and then becomes irreversible. The moment this happens is called "tipping points", and they are one of the things I write about in Authoritative Standing, which has been published by now.

Best to stand out when the crisis arrives.

It seems that everyone is arguing the same question: Will AI replace millions of jobs? And will this justify today's lofty market valuations? Or is AI massively overhyped, setting the stage for a painful correction?

The Kicker

From a broader economic perspective, it does not much matter which one wins.

If AI truly displaces millions of workers in a short period, consumer spending will collapse. And once spending collapses, the demand those AI investments were priced on will go up in smoke.

On the other hand, if AI disappoints, the correction lands on the valuations instead. And that will crash the S&P 500, as most of the world's largest technology companies are heavily exposed, think data centers.

Is There A Middle Ground?

I doubt it. Some people assume that extraordinary AI-driven growth will save the economy. What they forget is that in the current world, that growth ends up in the hands of a happy few. It does not feed broad purchasing power, so this still leads to the same demand collapse.

What This Means For You

I have no illusions, this forecast will not help you much, because as with any prediction, the timing is usually wrong. However, what you can do is prepare for the certain chance all this will happen.

In my book Authoritative Standing, which will be released any day now, we explore tipping points: the moments when gradual change suddenly becomes irreversible. The time to build is before the point, not after it.