AI Market Crash: Could the Market Fall 80%?

Jim Rickards’ AI Black Paper presentation makes a chilling prediction: the market could fall by as much as 80%. He frames this as a Minsky Moment, the culminating event in a pattern that has preceded the biggest market collapses in history.

The Minsky Moment framework, named after Harvard economist Hyman Minsky, describes how bubbles collapse in four phases. First, the hedge finance phase, where companies take on debt they can repay from cash flows. Second, the speculative phase, where companies take on more debt than earnings can cover. Third, the Ponzi phase, where companies need new investors just to service existing debt. Finally, the Minsky Moment itself: the culminating event when investors finally catch on and the market suffers a massive collapse.

Rickards maps this framework directly to the current AI boom. He points out that the dotcom bubble followed the same pattern before the Nasdaq plummeted nearly 80%. The 2008 financial crisis followed it before the market fell close to 60%. The Great Depression of 1929 followed it as well. His argument is that AI is now in the Ponzi phase, and the Minsky Moment is imminent.

The scale of the potential crash is what makes this prediction so alarming. The scale of the AI bubble is staggering. Rickards cites JP Morgan’s Chair of Investment Strategy, who noted that three-quarters of gains in the S&P 500 since the launch of ChatGPT came from AI-related stocks. Without those AI-driven gains, the S&P 500 would be worth roughly half what it is today. AI expenditures accounted for 92% of GDP growth, meaning AI-related spending now contributes more to the nation’s GDP growth than all consumer spending combined.

Nvidia, which designs the advanced chips at the heart of the AI boom, became the first company in history worth $5 trillion. That single stock represents almost 20% of all U.S. GDP. As Rickards points out, Nvidia does not even manufacture its own chips. Taiwan Semiconductor and other manufacturers build them. Nvidia just draws up the designs.

Rickards makes perhaps his most provocative claim by comparing data center financing to the subprime CDO crisis of 2008. Private equity funds build data centers, charge AI companies rent, and then combine multiple leases into securities sorted into tranches based on default risk. This is the exact same CDO structure that caused the 2008 financial crisis.

Charlie Warzel of The Atlantic confirmed this practice, writing that private-equity firms put up or raise the money to build a data center, which a tech company will repay through rent, and multiple data-center leases can be combined into a security. Tech journalist Ed Zitron refers to it as subprime AI because it is equivalent to giving no income, no asset loans to subprime borrowers in 2008. David Dayen of The American Prospect said we have a 2000s housing bubble level of financial engineering on top of a 1920s level of private unregulated lending on top of something bigger than a 1990s internet level of technology and infrastructure build-out. Oliver Wyman, a top financial consulting firm, warned that an equity crash like the early 2000s would wipe out approximately $33 trillion of value, more than US GDP.

It is not just individual investors who are worried. The chief of the Bank of England has warned that the private credit market is slicing and dicing and tranching loan structures, and that if you were involved before the 2008 financial crisis, alarm bells should be going off. Norway’s $2.1 trillion sovereign wealth fund, one of the biggest and most conservative wealth funds in the world, says it is shunning investments in data centers and AI. The former head of the IMF is saying this could turn into a $35 trillion market crash.

Rickards also points to historical precedents for profiting from crashes. Rickards reminds viewers that getting ahead of a market crash is how some of the biggest fortunes in history have been built. Michael Burry made his fortune by betting against subprime CDOs in 2008. Nassim Taleb, author of The Black Swan, built his fortune by getting ahead of the 1987 market crash. Billionaire Bill Ackman took home a massive 10,000% return in just a few weeks during the Covid Crash. John Paulson made $4 billion personally from the subprime trade.

The AI Black Paper presentation promotes Strategic Intelligence, Rickards’ monthly newsletter from Paradigm Press. The price is $49 for 6 months, originally $299, an 83% discount that works out to about $8 per month. The guarantee is 3 months: subscribers can request a full refund for any reason within that window and keep all reports.

The package includes six months of Strategic Intelligence plus six special reports: AI Fallout (the biggest AI losers to remove from your portfolio immediately), The AI Black Paper Blueprint (his personal million-dollar roadmap), AI Meltdown Insurance (how to profit from the coming crash), Trump’s AI Arsenal (how investing in AI superweapons could turn $1,000 into $162,000), The Perfect Physical Gold Portfolio, and How to Make Your Home Your Personal Fortress.

Where to Learn More

For the complete analysis, read our AI Black Paper review covering Jim Rickards’ full thesis on the AI Minsky Moment.

Learn more about the AI Minsky Moment framework in our dedicated explainer.

See our analysis of subprime AI debt for how data center bonds echo 2008.

Ready to explore Jim Rickards’ full research? Learn more about Strategic Intelligence here.

This is not financial advice. Always do your own research before investing.