There may be some divided opinion among economists about the path of the US economy, but one thing they can agree on is that the technology sector—namely, its investment—has been the engine driving our growth.
Investors, whether companies or individuals, have had a lot of enthusiasm in recent years. The rapid development of artificial intelligence has reshaped expectations about how companies operate efficiently and what the world of work will look like as a result.
But Wall Street has been here before, too with the technology sector. While the Dotcom craze produced many of the household names we know today, it also proved to be a bubble with trillions of dollars wiped out of the market.
Analysts realize that overly bullish forecasts may fall flat — even JPMorgan Chase CEO Jamie Dimon Beware some parts of the current investment cycle will eventually prove to be in a bubble.
But new modeling from Oxford Economics suggests that these forecasts may be a headache in the works for the US economy.
“It was the technology sector the Adam Slater, Adam Slater, wrote in a note yesterday, luck. “But this leaves the US vulnerable if tech suffers a downturn – without tech investment, US GDP would have barely grown in H1 2025, and business investment has actually declined.”
Oxford Economics has modeled two scenarios against the backdrop of a technology downturn, an environment in which investment and stock prices decline in tandem. First, a US-centered decline with modest indirect spillover would see GDP fall to 0.8% in 2026—which Slater writes is “flirting with recession.” Ripple effects would disrupt the global economy, slowing it from expected growth of 2.5% in 2026 to 2%.
For the second scenario, Oxford Economics models broader international equity shocks similar to levels seen in 2002, with volatility persisting over several quarters. Such repercussions would print on top of the damage identified to a more US-focused downturn, with global GDP falling to 1.7% in 2026. In addition, GDP in Mexico and Canada would be significantly negatively affected, as would Asian economies such as Vietnam, Taiwan and South Korea.
“In all of these economies, GDP is reduced by 1.5% or more by 2027 compared to our baseline,” Slater adds.
Smaller exposure than the Dotcom era
However, Slater adds that while a tech slowdown would be “far from compelling,” the risks are more present than in the Dotcom bubble.
From an equity perspective, Slater noted, there are some potential benchmarks. Had tech stocks fallen at DOTCOM levels in 2021-1022, they would have been down by a third, while in December 2024 to April 2025, this would have meant a 19% decline.
“Finally, to reconnect with technology valuations with a 10-year average, a decline (all else equal) of 35%. The average of all these criteria suggests a decline in tech stocks of about 25%,” Slater continued. “Although this is less severe than the Dotcom crash…valuations look less of a stretch than in 2000. It will still likely cause a severe negative economic hit, not least because US households have been exposed to far more stock selling than they were 25 years ago.”
“Direct and indirect ownership of stocks is about 250% of US disposable income, up from 180% in 2000. Federal Reserve surveys indicate that about 60% of US households own stocks, with exposure concentrated among the highest-income households who account for 45% to 50% of consumer spending.”
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