The bursting of the AI bubble would open Pandora’s box for the US and world economy, one of America’s top credit-rating agencies is warning.

Fitch Ratings flagged the risk of cascading economic damage if AI stocks were to see a sharp correction. In a scenario where stock prices in the AI sector were to drop 35% over the course of six months, the US would likely plunge into an economic downturn, with weakness spreading across the rest of the world over the next year, the firm wrote in a report outlining the most likely chain of events on Tuesday.

“A severe AI-related equity price shock — that could possibly result from a major re-evaluation of the ability of AI investments to generate returns —…