An AI ‘reality check’ may take the S&P 500 to 5,000. Here are the trades to make, this strategist says.

Panmure Liberum strategist Joachim Klement suggests the market may be due for an AI "reality check," with the S&P 500 potentially falling to 5,000. His argument centers on a gap between AI enthusiasm and actual corporate spending. The upcoming earnings season, he says, will be a key test: if companies fail to show meaningful AI-driven revenue or justify their capital expenditures, the valuations underpinning the rally could come under pressure.

The market relevance here is the tension between narrative and fundamentals. AI-linked megacaps have driven a large share of index gains, so any disappointment in AI spending data could weigh disproportionately on the S&P 500. Klement's 5,000 level implies a notable decline from recent highs, making it a useful reference point for gauging downside risk rather than a prediction to act on.

What to watch: AI capital-expenditure guidance and monetization commentary from major technology companies during earnings calls. Also monitor whether AI spending broadens beyond a handful of large firms. If spending stays concentrated or fails to translate into earnings, the "reality check" thesis gains credibility; stronger-than-expected results would challenge it.