Stocks tied to artificial intelligence have propelled markets to historic gains, and several strategists are comparing the current environment to periods that preceded major market crashes.
Michael Hartnett, strategist at Bank of America, highlighted that the SOX semiconductor index is currently 62 percent above its 200-day moving average. He noted this gap is more than twice the deviation the Dow Jones Industrial Average showed before Black Monday in 1987 and Black Tuesday in 1929. Hartnett also pointed out that the current divergence approaches the 55 percent gap the Nasdaq reached before the dot-com bust in 2000, and sits within the range of the 73 percent deviation recorded for the French stock index during the 1720 Mississippi bubble.
AI-related shares began a parabolic rise at the end of March, an unusually steep pattern for equities. Companies such as Micron, AMD, SK Hynix, Marvell and Intel have exhibited that trend. According to Hartnett, the combination of exponential price moves, market concentration and narrowing volatility are classic signs of a panic-driven buying wave—often described by investors as a “melt-up.”
Divergent views on whether this is a bubble
Some economists are unequivocal: Ann Pettifor, director of the PRIME research institute, says AI investments clearly constitute a bubble. Several Wall Street banks estimate that the volume of these investments could exceed one trillion dollars next year.
Others urge perspective. Robin Wigglesworth, an editor at the Financial Times, cited a JPMorgan analysis to emphasize that, relative to the 1860s railroad boom, AI investments remain small as a share of GDP.
Some commentators acknowledge the likelihood of a bubble but do not regard it as catastrophic. Writer Derek Thompson—cited by Howard Marks, co-founder of Oaktree Capital—reminded readers that past transformative technologies such as railroads, electrification and the late-1990s broadband rollout were associated with bubbles that ultimately reshaped the U.S. economy. He argued it’s unlikely artificial intelligence would be the first paradigm-shifting technology not to be followed by overinvestment and a painful market correction.
Revenues materialize even as market internals weaken
Despite bubble concerns, AI-related revenues are materializing in corporate results. Alphabet’s cloud revenues rose 63 percent year-over-year in the first quarter. Amazon’s AWS reported 28 percent growth to $37.59 billion in revenue, and Microsoft’s cloud business, which includes Azure, grew 40 percent to $34.68 billion in its third fiscal quarter. Those strong numbers have helped alleviate some investor worries.
At the same time, gains are increasingly concentrated in a narrower group of stocks. Piper Sandler’s analysis points out that although the S&P 500 is repeatedly setting records, the ratio of advancing to declining stocks is deteriorating—an indication that the market’s rally may rest on fragile foundations.
What to watch next
Analysts say investors should monitor:
- the SOX and other technology indexes’ distance from their 200-day moving averages;
- volatility trends and the degree of market concentration;
- ongoing AI and cloud revenue strength at large technology firms;
- market breadth measures within the S&P 500.
In sum, the current market displays both tangible signs of AI-driven revenue growth and technical indicators that some interpret as bubble signals. Opinions differ on whether a correction is unavoidable and how painful such a correction would be for the broader economy.
Tags: Microsoft, Amazon, artificial intelligence, bubble, equity market, AMD, Alphabet, Intel, investment, semiconductor industry
