RE:RE:Stock Market Shifts into Small Caps Violent Selling in the Magnificent 7
While the rotation from tech remains on display, the moves in tech were violent enough to suggest something else was at play. Specifically, investors appear to be listening to growing chatter in some Wall Street circles that the AI rally that fueled a bubble that added $9 trillion in value to the S&P 500 in the past year is bound to burst. While Wednesday may not mark the start of that, the magnitude of the drop raises alarms.
“In the short run, there may be a little AI fatigue, just because some of these investments that the Big Tech companies have made in AI may not be paying off in the time period that investors had in mind,” said Neville Javeri, portfolio manager at Allspring Global Investments.
AI Bubble Fears
Jim Covello, the head of equity research at Goldman Sachs Group Inc., is among a growing number of market professionals who are arguing that the commercial hopes for AI are overblown and questioning the vast expense required to build out infrastructure required for the computing to run and train large-language models.
Talk of a bubble in AI names is being fanned by activity in derivatives markets, where investors piled into bullish options on indexes and individual stocks, especially Nvidia, that acted as rocket fuel during the rally. That sentiment shifted as the rotation from tech picked up speed, and potentially added to the downdraft Wednesday.