Billionaire Leon Cooperman says today's AI boom echoes a major bust from the 1970s — a lesson from the 'Nifty Fifty' crash

“I think that we’re going to have a recession sometime next year, and that will probably bring the market down,” Cooperman told CNBC, according to Business Insider, adding that he thinks earnings estimates for the S&P 500 are mispriced.

Cooperman says signs indicate that the current economic cycle is coming to an end and stocks could be hit as AI hype begins to die down.

A journey back to the Nifty Fifty crash

Cooperman told CNBC that investors are ignoring the key threat of higher inflation, specifically the recent increase in oil prices. On Aug. 17, Brent crude — the international benchmark for oil — was trading 22% higher from levels prior to the start of the Iran war.

Cooperman argued higher inflation poses a risk to stock prices — drawing a comparison to the Nifty Fifty crash.

The Nifty Fifty was a group of 50 stocks considered that were, during the 1950s and 1960s, considered infallible. Household names like McDonald’s, Polaroid and Disney were so attractive to investors that they believed they should always be bought and never sold, regardless of price.

Then the U.S. stock market entered a bear market between 1973 to 1974. Inflation was on the rise, interest rates were increasing and an oil crisis hit. The Nifty 50 significantly underperformed, with some stocks in the group dropping as much as 80% to 90%.

“The three most dangerous words in investment land vocabulary are: ‘It’s different this time,’” Cooperman told CNBC, referring to the current investment landscape. He also said he was “negative” on markets overall and is avoiding tech stocks in particular.

How Wall Street is feeling

Cooperman’s comments come as the S&P 500 continues to trade near record highs. According to the latest update from FactSet, the benchmark index is on track to post year-over-year earnings growth of over 50% for the second quarter. If it happens, that would be the highest pace of earnings growth since 2021, amid the pandemic boom.