Jefferies Flags AI Credit Strains And US Consumer Debt Stress; Keeps India Overweight

Over the past three years, the artificial intelligence (AI) boom has captivated markets across borders. Increasingly, investors have attempted to chase opportunities in the technology ecosystem. Institutional capital has also poured into the sector with expectations of profound profit growth.

However, despite a promising run, Christopher Wood, global head of equity strategy at Jefferies, has flagged fresh headwinds for AI companies in his latest Greed and Fear report. While warning of headwinds, such as AI credit strains and US consumer debt stress, Wood has maintained an overweight stance on India hinting at where he sees the next phase of growth in the market.

Jefferies’ AI Reality Check

Wood’s cautionary outlook on AI companies follows the release of key US macroeconomic data. Notably, headline inflation in the US rose 3.70 per cent year-on-year (y-o-y) in September and hurt AI-related stocks more than bonds, according to the report.

Global AI stocks are extremely sensitive to inflation and interest rate shocks. Following the release of the inflation data on October 14, 2026, the four major US hyperscalers Amazon (Amazon Web Services), Microsoft (Microsoft Azure), Alphabet (Google Cloud), and Meta Platforms shares dropped two per cent, and the semiconductor index fell 4.30 per cent even as bond yields briefly topped 5.30 per cent.

The report indicates that the US economy is currently facing polarisation in the form of a K-shaped economy. US Federal Reserve data shows median wealth for the top 10 per cent of earners jumping 31 per cent between 2022 and 2025. Simultaneously, the median wealth for the bottom 20 per cent has shrunk by 6 per cent, alongside serious credit card delinquencies hitting a 15-year high of 13.12 per cent in early 2026.

“The survey also found that the share of US families reporting being behind on loan payments surged from 12 per cent in 2022 to 20 per cent in 2025,” Wood said.

Just as high interest rates are straining US consumers, they are also testing the debt markets that fund massive AI capital expenditure programs. According to the report, five-year credit default swap spreads for AI infrastructure players Oracle and CoreWeave surged from 186 basis points and 749 basis points (bps) in mid-September to 288 bps and 1,118 bps by October.

This in turn marks the highest stress levels since early 2023. Explaining the risk of credit markets pulling back support for heavy technology spending, Wood urged market participants to monitor debt metrics closely.

“As regards the AI thematic, one of the messages of the new Asia Maxima is that investors need to keep laser focused on credit spreads for any evidence that the market is no longer willing to fund the ongoing AI capex boom, or to put it more crudely, that the credit card will be taken away,” Wood said.

Beyond credit jitters, Jefferies’ projections also indicate that profit expansion in the AI sector is set to cool considerably. While global AI stocks trade at 23 times forward earnings, the non-AI equity basket trades at a much cheaper 13 times forward earnings. Notably, earnings growth for non-AI tech stocks is projected to moderate from 16 per cent this year to nine per cent in 2027 and 2028. On the other hand, the earnings growth for AI stocks (MSCI ACWI) is projected to reduce to 30 per cent in 2027 compared to 100 per cent in 2026.

“The report notes that global AI stocks' consensus earnings are expected to slow materially from about 100 per cent in 2026 to 30 per cent in 2027 and 22 per cent in 2028,” Wood said.

Overweight On India

As global AI valuations face scrutiny, Wood sees non-AI sectors generate stronger returns. While Jefferies avoids companies spending heavily in the AI capex arms race and holds only selective hardware exposure in Asia, Wood noted that recent post-earnings sell-offs in chipmakers show the easiest gains have passed.

“One thing is clear. The easy money has long since been made in the semiconductor stocks,” Wood said.

Against this shifting landscape, Jefferies continues to back Indian equities. Within its Asia Pacific ex-Japan relative-return portfolio, the firm maintains a 12 per cent recommended weighting for India, keeping it Overweight against the current 10.90 per cent MSCI benchmark weighting.

What This Means For Retail Investors

For retail investors in India, the projection offers visibility into how foreign institutional flows and global sentiment are set to evolve in the upcoming months. Widening credit spreads in AI infrastructure and rising US household debt delinquencies suggest that global markets skewed heavily towards AI could face heightened volatility.

Simultaneously, the broadening of emerging market returns toward non-AI sectors and Jefferies’ sustained Overweight position on India highlight the potential stability of domestically driven earnings growth.