The S&P 500 hit new highs last week, but the engine is running on one cylinder. Nvidia crossed $5 trillion. Microsoft and Broadcom rode the wave. Strip those names out, however, and the index is deep in the red. Since late February, 118 S&P 500 stocks have dropped over 10%, while only 82 climbed that far—most tied to AI. This isn’t a broad recovery; it’s a concentrated bet.
Geopolitical shocks and rising input costs hammered agriculture and other sectors. Oil spiked. AI names shrugged. Investors piled into anticipated IPOs from Anthropic and OpenAI, building froth. Data-center builds are cash-intensive today, but free cash flow from AI applications is a late-decade promise. Bears invoke dot-com ghosts: picks-and-shovels suppliers soared then crashed. Bulls counter that AI’s scale dwarfs that era and valuations look tame by 2000 standards.
The frenzy reignited. The Wall Street Journal reported signs of excess: desperation for IPO access mirrors past manias. Goldman Sachs’ Joseph Wilson noted a shift: the Magnificent Seven barely moved 2% year-to-date, while enablers stole the show—Intel up 119%, ARM 113%, STMicro 97%. The demand for inference and edge computing now favors CPUs over GPUs, and power efficiency matters more.
Nvidia rules. Shares hit $208. Michael Burry’s $187 million put bet at $110 needs a 47% drop by 2027 to pay off. He likened it to pre-crash Cisco. Nvidia added $2.15 trillion since. Burry shuttered his fund last November and now writes a $39 Substack on the AI thesis. One trader warned of circular cash flow: Nvidia funds OpenAI, which buys Nvidia chips. Echoes of dot-com name-slapping.
Profits flow, though. Tech earnings grew 48% this quarter, revenue up 28%. Tesla plans $25 billion capex for AI robots. Meta and Microsoft cut jobs for AI shifts. Software faces an ‘apocalypse’ fear, triggering outflows. Computing power strains; AI guzzles energy, rationing hits users.
History whispers caution. Bank of America polls tag AI as the top tail risk. The S&P’s cyclically adjusted P/E nears 2000 peaks. Big Tech nears 30% S&P weight. One X user fretted: ‘The S&P is an AI ETF now.’
What’s next? Inference phase looms in 2026. Recurring revenue could kick in, or overcapacity bites—50% of data centers may be canceled, per Polymarket odds. Hyperscalers watch earnings. Burry waits. Markets stay irrational longer than most stay solvent. The narrow engine hums. Cracks widen below.
Source: Webpronews