Forecasts for the S&P 500, tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), diverge as AI dictates market direction, while specialized ETFs continue to outperform SPY over a five-year horizon.
However, market strategists remain locked in a tug-of-war between $1 trillion in projected AI capital expenditures and growing warnings of an impending bubble burst.
The $1 Trillion Tech Expansion and ETFs That May Benefit
Carson Group projects a 15% to 18% upside for the benchmark index, driven by $1 trillion in capital expenditures from major technology hyperscalers by 2027. Chief Market Strategist Ryan Detrick views technology as a mandatory portfolio anchor, noting that tech giants like Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon.com Inc. (NASDAQ:AMZN) are fueling a circular spending ecosystem across private technology ventures.
This massive capital injection has generated distinct performance gaps compared to the benchmark SPY. Over the past five years, SPY returned 69.11%.
In contrast, three specialized financial instruments recorded significantly higher returns: the VanEck Semiconductor ETF (NASDAQ:SMH) gained 293.60%, the iShares U.S. Technology ETF (NYSE:IYW) returned 132.29%, and the Invesco S&P 500 Momentum ETF (NYSE:SPMO) rose 127.90%.
| ETFs | 1-Month | 6-Months | YTD | 1-Year | 5-Years |
| SPMO | -6.27% | 23.68% | 19.39% | 18.62% | 127.90% |
| IYW | -2.12% | 33.56% | 24.10% | 31.17% | 132.29% |
| SMH | -7.78% | 39.96% | 49.21% | 76.49% | 293.60% |
| SPY | -2.44% | 14.36% | 11.07% | 14.60% | 69.11% |
Late-Stage AI Bubble Warnings
Despite these ETFs’ historical outperformance, economic warnings are mounting about systemic risks. Capital Economics forecasts the S&P 500 will reach 8,250 in 2026 before falling to 6,500 by the end of 2027, while warning that the eventual AI-bubble unwind could produce a much larger decline.
“There are plenty of signs that we are now in the late stages of a bubble in AI,” said John Higgins, chief economic adviser for financial markets at Capital Economics.
The firm cites elevated tech capital expenditure relative to GDP, stretched valuations, and high market concentration. J.P. Morgan Asset Management’s Bill Eigen similarly warned investors to monitor slowing private-market valuations, while senior markets economist James Reilly called current earnings expectations “the dot-com bubble all over again.”
Furthermore, a Bank of America survey revealed that 48% of investors view AI hyperscaler capital expenditure as the most likely trigger for a systemic credit event.
How Have Stock Markets Performed in 2026?
The S&P 500 index has advanced 10.60% year-to-date. Similarly, the Nasdaq Composite index was up 11.82%, and the Dow Jones gained 7.67% YTD.
On Tuesday, the SPY and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed lower. SPY fell 0.46% to $757.39, while QQQ fell 0.65% to $704.54. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), also ended 0.62% lower at $521.23.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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