The AI trade has boosted the market for years now, with its rapid growth being felt by the broader economy as companies keep spending. However, one research firm thinks the AI story will not end well for investors or everyday Americans.
Stocks tumbled on Monday after a report circulating online from Citrini Research raised fresh fears about the impact of AI. The Dow was down by more than 800 points around midday, and the Nasdaq fell more than 1%. Software stocks were among the biggest losers, with names including AppLovin, Asana, DocuSign, and Zscaler down sharply.
Citrini, a firm focused on thematic equity investing, theorized about the long-term impact of the AI boom, laying out a predictive scenario in which the technology continues to expand but ultimately proves detrimental to the broader economy.
In Citrini's hypothetical scenario, written as a look back from 2028, the AI explosion leads to a plunge in white-collar employment and ultimately to a stock market crash.
The scenario begins with a question:
"What if our AI bullishness continues to be right...and what if that's actually bearish?"
The answer is different from many other bearish AI takes. When finance or economics pros express concern about the stability of the AI boom, they typically focus on problems with infrastructure and the stability of the AI buildout.
But Citrini's analysis assumes that the AI boom will continue, just not in a way that helps transform the economy, nor in the positive way AI bulls like Elon Musk have touted. In their scenario, the rise of AI continues driving white-collar layoffs, severely reducing the spending power of those workers and lowering economic growth in the process.
"This would have been manageable if the disruption remained contained to software, but it didn't," Citrini stated. "By the end of 2027, it threatened every business model predicated on intermediation. Swaths of companies built on monetizing friction for humans disintegrated."
In this scenario, AI progress is quickly felt in the housing market, as white-collar workers in expensive metro areas are no longer able to afford homes, which has a knock-on effect in the mortgage market.
All these negative events ultimately lead, in Citrini's imagined scenario, to a stock market crash, with the S&P 500 cratering by 38% from its October 2026 peak.
"The system turned out to be one long daisy chain of correlated bets on white-collar productivity growth," the note said. "The November 2027 crash only served to accelerate all of the negative feedback loops already in place."
A core takeaway from the note is the importance of differentiating between the market and the economy, particularly when the market is booming. Markets applaud productivity and growing margins, the things we see when companies announce large-scale job cuts.
The broader economy, though, depends on consumer spending, which depends on wage growth keeping pace with rising prices. When these two become disconnected, even a booming stock market driven by a force like AI can't hide the negative impact that comes from diminished white-collar spending power.
Citrini frames its scenario as a warning, implying that investors should take action now and not be lulled into a sense of security by the strength of the AI trade.
"As investors, we still have time to assess how much of our portfolios are built upon assumptions that won't survive the decade," it concludes. "As a society, we still have time to be proactive."
