AI Gold Rush Cooling? Jefferies Warns of Sharp Slowdown in AI Stocks Earnings Growth
Jefferies warns that AI stocks' earnings growth will drop sharply by 2028, urging investors to diversify as valuations remain high.
The meteoric rise of artificial intelligence in the financial markets may be hitting a speed bump. According to a recent report by Jefferies, AI stocks earnings growth is expected to decelerate significantly over the next two years, leading analysts to urge investors to diversify their portfolios beyond the AI hype.
The Numbers: A Steep Decline in Growth
The report, which analyzed AI-related stocks within the MSCI AC World Index, paints a sobering picture of the future growth trajectory. While the sector has seen explosive gains, the projected earnings growth is set to plummet from approximately 100 per cent in 2026 to 30 per cent in 2027, and further down to 22 per cent by 2028.
In contrast, stocks outside the AI sphere are expected to see a much more gradual easing of growth, moving from 16 per cent in 2026 to a steady 9 per cent in both 2027 and 2028.
The Valuation Gap
A critical point of concern highlighted by Jefferies is the disparity in valuations. Global AI stocks are currently trading at 23 times forward earnings on an equal-weighted basis. Meanwhile, stocks in other sectors are trading at a much more modest 13 times forward earnings.
Given the slowing growth projections and the high current valuations, the report suggests that investors should look toward other sectors that offer relatively lower entry prices and more sustainable growth patterns.
The "Easy Money" Era Ends
Jefferies was blunt regarding the semiconductor boom that fueled the initial AI surge, stating, "One thing is clear. The easy money has long since been made in the semiconductor stocks."
Warning Signs in Credit Markets
Beyond earnings, the report points to credit spreads as a warning signal. There are growing concerns about whether markets will continue to finance the massive capital expenditure (capex) required for AI infrastructure.
The data shows a worrying trend in Credit Default Swap (CDS) spreads for key players in the AI ecosystem:
- Oracle: 5-year CDS spreads surged from 186bp on September 11 to 288bp.
- CoreWeave: 5-year CDS spreads jumped from 749bp to 1,118bp.
These figures represent the highest levels since the AI capex cycle began in early 2023. Additionally, the yield on CoreWeave's bond maturing in 2032 has climbed to 14.8 per cent, signaling increased risk perception.
Emerging Markets and the Concentration Risk
The report also observed a shift in emerging markets. While AI-related stocks in these regions gained 81 per cent in the year ending June, their momentum slowed in the second half of 2026, while non-AI sectors began recording strong returns.
However, the concentration of AI giants in emerging market benchmarks remains a risk. Three companies—TSMC, Samsung Electronics, and SK Hynix—together make up 28.5 per cent of the MSCI Emerging Markets benchmark. Jefferies noted that it is unsettling for the market when these behemoths release results that merely meet expectations, only for the stocks to sell off immediately after.