One under-the-radar market signal shows the AI boom might be close to ending

• There's an under-the-radar sign that says the AI bubble is close to popping, Capital Economics says.
• The research firm highlighted rising equity issuance, a characteristic of past bubbles.
• Net equity issuance could turn positive this year, something that's preceded other market peaks.

One research firm says it's spotted a new red flag in the AI trade that suggests the bubble is close to bursting.

That would be the rising amount of equity issuance — or the volume of stock being sold by companies and snapped up by investors, according to Capital Economics.

In a recent note to clients, the research firm pointed to how gross equity issuance has been rising sharply in the US in recent years, thanks to the frenzy for artificial intelligence. That's a feature that traditionally been seen in past market bubble peaks, Joe Maher, a markets economist at the firm, said.

Gross equity issuance by non-financial US firms now looks higher or at similar levels when compared to the dot-com bubble, the period leading up to the Great Financial Crisis, and the pandemic stock rally, per Capital Economics' analysis.

"One warning sign that a bubble is close to bursting is high and rising gross equity issuance," Maher wrote. "There are myriad of reasons why these rallies faltered, but one factor may have been that surging share issuance eventually overwhelmed investors' appetite for stocks, helping to push stock prices lower," he later added.

That's not to say the AI trade doesn't have room to climb higher. When accounting for historically high stock valuations, equity issuance isn't as extreme as it looks, Maher said.

Meanwhile, corporations have been executing large-scale stock buybacks, so net equity issuance as a whole remains negative.

Net equity issuance turned positive around the time the dot-com bubble, 2007 stock rally, and the pandemic stock rally peaked, Maher added, calling positive equity issuance a "harbinger" of a rally reaching its climax.

Net equity issuance could rise this year, should companies like SpaceX, OpenAI, and Anthropic go public as expected, Maher said. Many tech firms are also tapping into private capital, and rising equity issuance in private markets could also be a sign that the AI bubble is close to popping, he suggested.

"With a rising share of issuance taking place in private markets, warnings signs that the AI bubble is close to bursting may also emerge there," Maher wrote.

Most forecasters on Wall Street expect continued gains in the market in 2026, but investors have been feeling increasingly nervous about a stock bubble, given the market's enormous returns in recent years. Capital Economics, for its part, has predicted that the tech stock bubble would burst in 2026 for the past several years.