If the stocks related to the AI industry chain were excluded, the substance of the current S&P 500 rally would be significantly diminished.
The recent rise in the S&P 500 is not a broad market advance. An index compiled by Goldman Sachs that excludes AI beneficiaries has declined slightly since the end of February, while the overall S&P 500 has gained about 10% and the leading AI sector has surged over 45% in the same period.
This indicates the current market movement is not a comprehensive bull market, but is essentially characterized by highly concentrated capital flows. The AI sector is not only outperforming the broader market, but is also responsible for the vast majority of the index's gains.
Since the concept of the "Magnificent Seven" (Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, Nvidia) gained traction in 2023, concentrated capital has become a hallmark of this bull run. At that time, only a handful of mega-cap tech stocks were driving the index higher, while the vast majority of individual stocks performed weakly.
The market trend has now further narrowed its focus: it is no longer limited to just seven giants. Stocks that deeply benefit from the AI capital expenditure boom, such as computing infrastructure, AI software, high-power-consumption utilities, and upstream industrial suppliers, are collectively strengthening.
Jim Bianco, an analyst at Bianco Research, holds an even more radical view: "The U.S. stock market has never seen a single theme dominate the market to this extent in the past 150 years."
He compares the current market to the railroad infrastructure bull market of the late 19th century, when a transformative technology reshaped the entire U.S. economy and capital market funds flooded into the railroad sector. "Railroads completely changed the U.S. economy, and AI is the next technology with that same transformative potential."
Based on 41 AI-related stocks screened by J.P. Morgan, Bianco Research calculates that these 41 companies now account for nearly half of the total market capitalization of the S&P 500.
Such extreme concentration harbors risks and makes the market's turning point difficult to predict.
"Is this AI rally a bubble? Most likely. But the more critical question is: at what stage of its lifecycle is this bubble?" Bianco stated.
He cites the late-1990s internet bubble as a cautionary tale: Alan Greenspan warned of "irrational exuberance" in 1996. Had investors exited then, they would have missed the Nasdaq's subsequent nearly 300% surge leading up to the peak of the internet bubble.
The logic behind the current S&P 500 trend is clear: as long as the AI sector remains strong, the broader market can maintain its upward trajectory. However, if the AI sector weakens, the fundamental support for the index will be far less solid than the current price levels suggest.
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