This is the biggest threat to the AI-powered bull market

Blockbuster earnings growth has helped to power the stock market higher in 2026. In 2027, that engine might stall.

Earnings for the S&P 500 SPX are on track to grow by more than 30% this year, a pace rarely seen outside of the early innings of an economic recovery, according to Capital Economics. Profit growth is expected to moderate slightly next year and slow to 16.3%, although that is still roughly double the long-term average.

But worries that even this slower pace of growth might not materialize has helped to weigh on major indexes like the tech-heavy Nasdaq Composite COMP recently. The Nasdaq finished Friday's session on the cusp of correction territory — defined as a drop of 10% or more from a recent high.

During the early years of the bull market, gains for the top-performing stocks far outpaced the earnings that analysts expected these companies to bring in over the next year. But since the start of 2026, that dynamic has been flipped on its head, as investors have become increasingly unwilling to pay up for the lofty earnings growth that Wall Street analysts are expecting.

The forward price-to-earnings ratio for the S&P 500 has been falling all year and was recently at around 19, about 20% below its peak. For the fast-growing technology sector, multiples have come down even more quickly. Some of tech's heavy hitters — like chip maker Nvidia NVDA — are trading at multiples in the midteens, roughly half of the highest levels seen in 2025.

Some have said that this is a solid indication that the stock market isn't in a bubble, since lofty valuations are usually a signpost of a market bubble forming. Others, including Damped Spring Advisors founder Andy Constan, have warned that a bubble isn't forming in stock prices but rather in projected earnings.

To Eddie Ghabour, co-founder of Key Advisors Group, investors have good reason to be skeptical about all of this expected growth. Investment-grade corporate borrowers like Amazon.com AMZN rushed to issue debt at the same time as lower-quality borrowers like CoreWeave CRWV, prompting investors to start to demand a higher premium for holding corporate debt.