To The Moon

One of the most recent controversies in U.S. equities is whether AI stocks are showing signs of a "bursting bubble".Of course, there are also whether the "bubble".

• First, market rotation has begun.Since last Thursday, there has been a "big rotation" in the market.

  • The overall S&P 500 is down 0.88%;

  • 396 stocks in the S&P 500 gained, with the equal-weighted index up 1.17%;

  • The Russell 2000 small-cap index jumped 3.57%, its best one-day performance since November 2023

  

  The "Magnificent 7" retreated en masse by a wide margin. $ Apple (AAPL) $ Microsoft (MSFT) $ Meta Platforms (META) $ Google (GOOG) $ <a10> $Nvidia (NVDA)$ $Google A (GOOGL)$ $ Tesla (TSLA)$ $ Amazon (AMZN)$

  • The performance gap between the S&P 500 $S&P 500 (.SPX)$ and the equal-weighted S&P 500 $Average Weighted Index ETF-Rydex S&P (RSP)$ is the largest since the November 2020 Pfizervaccine announcement;

  • Shares of these seven companies fell 4.26%, the biggest decline since October 2022

  • And the October 2022 drop occurred one month before the launch of OpenAI ChatGPT.

Since the market is starting to see the same declines as before the GPT launch, is there an AI bubble that is starting to exist and be digested?

The head of Goldman Sachs' research department acknowledged the existence of an AI bubble, explaining the "ridiculously high prices" of these companies.But then, $Goldman Sachs (GS)$ also has a tendency to "point the other way".

How will this market change play out?

1. Increased market volatility.More market volatility and adjustments are likely to occur in the future, based on the large short-term market capitalization losses of Magnificent 7 and the divergence in overall market performance, with long and short chip trades becoming frequent.

2. Changes in investor risk appetite.After $ Asmax (ASML)$ earnings, investors may begin to reevaluate risky, highly valued tech stocks in favor of neglected market sectors.This shift could lead to more diversified capital flows, in addition to the fact that market rotation is generally persistent.

3. Potential changes in market structure.Current market differences and the situation at the time of the $ Pfizer (PFE)$ vaccine announcement in November 2020 suggest that a significant market turning point may be underway, and therefore could bring about broader market structure changes.

4. Changes in investor sentiment.Investors may begin to assess valuations of AI-related companies more cautiously, leading to price adjustments in these stocks, but the long-term impact remains uncertain.