The US technology bull market faces both near-term correction risks and a potential major inflection point around 2028, according to a recent analysis. Several catalysts, including excessive leverage, China's AI catch-up, a traditional economic rebound, and political backlash, could potentially end the rally.
Immediate Downside Risks
In the short term, a significant pullback is cautioned, with the Nasdaq potentially falling more than 10% from recent highs. The momentum for valuation expansion has stalled, and while major topping narratives exist, they remain speculative for now. Market gains have largely priced in 2026 earnings expectations, with the next leg up likely requiring a shift to 2027 forecasts later this year.
Excessive Leverage as a Warning Signal
A key risk indicator is the surge in margin debt. Historically, when the growth rate of US margin debt significantly outpaces stock price gains, exceeding a 20% premium, it has often preceded major market tops, as seen in 2000, 2008, and 2022. This premium has recently climbed to 25%, suggesting elevated leverage and raising the probability of a significant market peak within the next year.
China's AI Challenge to US Capex
The rapid advancement of Chinese AI models, which are closing the performance gap with US counterparts while consuming fewer resources, is questioning the sustainability of high capital expenditure (Capex) in the US tech sector. This could be a potential catalyst for re-rating US tech stocks. The market is closely watching the release of models like Kimi K3 to see if they replicate the disruptive impact DeepSeek had in early 2025.
Potential Rebound from Traditional Sectors
A convergence of the K-shaped economic divergence, coupled with a recovery in traditional sectors, could lead to a market style rotation away from technology. Historical examples include the dot-com bust in 2000, where the Dow Jones held up while the Nasdaq crashed amid a strong economy, and early 2026, when the Dow hit new highs as the Nasdaq corrected on recovery trades. Currently, however, high interest rates make an autonomous recovery in real estate and consumer sectors difficult, leaving an AI-driven application boom across industries as a potential path to a "new cycle."
Political Backlash and the 2028 Election
If the K-shaped divergence persists, it could fuel a social backlash against AI. This sentiment might be exploited by both parties in the 2028 US presidential election. Campaign platforms proposing stricter regulation, antitrust actions, or tax increases targeting AI giants could forcefully interrupt the tech bull market, reminiscent of the impact of Microsoft's antitrust ruling in 2000.
Other Catalysts: Narrative Disproval and Fed Tightening
The market is already pricing in concerns over industry narrative failure and potential Federal Reserve tightening. This is evident in the stalled valuation expansion for US tech stocks, with future price gains now primarily dependent on earnings per share (EPS) growth rather than multiple expansion.
The 2028 Deadline
Looking to the medium term, 2028 emerges as a potential deadline for the current tech bull run. The bubble may need to be resolved before then through internal factors (explosive application growth, a new cycle, or industry narrative failure) or external shocks (China catching up or Fed rate hikes). Otherwise, worsening economic inequality could lead to a political reckoning during the 2028 election cycle, forcing a policy-driven end to the rally.
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