Fortune Analysis: One AI Bubble Has Burst, a Rare Next One Is Growing — SaaSpocalypse and the Earnings Bubble

A new analysis by John Higgins, chief markets economist at Capital Economics, published in Fortune has drawn significant attention. According to Higgins, the AI stock valuation bubble has already burst — the price-to-earnings ratio for the tech sector, which peaked at nearly 75% in late 2024, has fallen to its lowest level since the pandemic.

Particularly severe is the 'SaaSpocalypse,' a massive selloff in SaaS stocks. Major companies like Salesforce and ServiceNow have lost approximately 30% of their value since the start of 2026, driven by fears that agentic AI will render traditional software models obsolete.

However, Higgins warns that a second, rarer bubble may be forming — not in stock prices, but in corporate earnings themselves. Bloomberg Intelligence estimates earnings growth for the Magnificent Seven at 18%, compared to 11% for the rest of the S&P 500. NVIDIA reported a 73% year-over-year revenue increase to $68.1 billion in its fourth quarter.

The sustainability of this growth is questionable. Goldman Sachs estimates $539 billion in AI capital expenditure for 2026, but signs suggest that corporate AI adoption, despite reaching 88% of companies, may be stalling. As of fall 2025, there were 498 AI unicorns with a combined valuation of $2.7 trillion, and OpenAI's valuation surged from $500 billion to $730 billion in under six months. Higgins notes: 'Normally we think of a bubble as something where the price has gotten out of whack with the fundamentals. In this case, the bubble may actually be in the earnings themselves.'