As well, U.S. investors who watched the Super Bowl also saw a flood of AI-related TV commercials. Welcome to the 2026 AI Super Bowl. Tech ad spend was double the level of the “Crypto Bowl” in 2022, and we know what happened to cryptocurrencies in that year.
The Rise and Fall of AI
Investor enthusiasm over the promise of artificial intelligence began with the release of ChatGPT, which prompted a stampede into NVIDIA, the hyperscalers and other AI-related stocks. The rest, as they say, is history. AI was eating the world and the momentum seemed unstoppable, culminating with Time Magazine’s Person of the Year award.
The market seems to be waking up to the unsustainability of AI-related capital expenditure. Analysis by the WSJ shows that projected hyperscaler capex dwarves the cost of the moon landing when measured as a percentage of GDP. It’s only exceeded by the Louisiana Purchase.
The market is starting to price in a risk premium to tech sector credit. Tech sector CDS pricing has risen dramatically. The surge began when investor concerns over the sustainability of Oracle’s capital expenditure plans surfaced.
A Chicago Fed study underlined the reasons why the credit market has turned nervous. Fully 26% of big bank loans to software companies are rated B or lower, defined as “highly speculative” with a “limited margin of safety”.
A Welcome Market Rotation
In summary, the market is signaling the end of the AI hype. While technology stocks remain range bound, they violated a short-term relative support level (second panel, dotted line) and went on to test a longer-term relative support. Relative breadth indicators (bottom two panels) are weak. While readings are oversold in the short term, the intermediate-term outlook is suggestive of a top in a narrow leadership group.
The weakness in large-cap growth appears to have more downside potential. The 12-month normalized NASDAQ 100 to S&P 500 (black line) remains in the middle of its historical range and it’s not oversold. Similarly, the 10 dma of the percentage bullish on P&F for NASDAQ 100 stocks (bottom panel) isn’t an oversold extreme yet.
History doesn’t repeat itself but rhymes. Current economic conditions are not the same as the Dot-Com Bubble top of 2000, when the NASDAQ crash sparked a recession. Today, the market and economy are exhibiting signs of growth. Leadership is rotating from AI to cyclical stocks.
Global earnings growth is strong. Both S&P 500 (blue line) and EAFE (pink line) EPS estimates are exhibiting positive momentum. Global stocks are surging to all-time highs. Recessionary bear markets simply don’t behave this way.
In conclusion, I am seeing the signs that the AI hype is over. Technology stock leadership is weakening because of the technical damage from internal rotation within the AI-related group. The good news is this isn’t the 2000 NASDAQ top. Leadership is rotating from AI to cyclicals, as a signal of continued global economic growth.
The shift from Growth to Value started at the beginning of November in America and Europe. A key event was Michael Burry’s post about an A.I. reality check on October 24.
With markets globally floating on a rising tide of deficit money printing, the indexes float higher and investors simply change horses.
The giant Tech companies make huge cashflows and the GOP big beautiful bill has massive capital spending tax breaks to help fund the buildout. They have big unfilled demand for services that will be profitable unlike Pet.com that wasn’t going to sell more dogs and cats over the internet. Epic crashes usually involve debt problems. That isn’t on the near term horizon at least for a few years.
In other words, I don’t expect a bubble crash now. Nvidia will be announcing big orders in their quarterly earnings soon. Should quell nervousness in the big names.
This fiscal dominance is a theme that likely has legs, until it can no longer go on. No idea when that happens but at some point it will and it should be nasty!
Classic Kindleberger, a mania is set off by an innovation/disruption…BTC is an example as is AI.
The Louisiana Purchase, the interstate and railroads all eventually led to great growth…they were well grounded (couldn’t resist )
What will stop deficit spending to the tune of trillions a year? Think of crack addicts in a crack house voting to stop. The place has to burn down.
Keep an eye on bonds…they could be smoke detectors.
Back in the early internet days if you clicked on the wrong link, you got a Pornado on your screen. So this does not happen nowadays on sites with advertising, Adnados would destroy its use. This is where Meta and google are racing to, to get data that enables them to improve the results of adverting dollars in order to capture more of the advertising and search business.
They are not building these huge server farms out of public interest.
Look at the federal deficit since 1980 and the S&P since 1980…they literally overlap. So this year if we add 2 trillion to a 30 trillion deficit we are talking approx 7%, which would put the S&P about 7% higher, although if one compares the deficit and S&P, the S&P rose faster, so it likely is more than 7%.
Of course, this may not hold, but it’s been almost 50 years, and when will deficit spending end?
So the crack house has an atm so to speak.
Do those on social security and medicare want to cut their benefits? Will they vote for that?
There will be BTFD opportunities when there is a shakedown, as long as the deficit keeps ballooning.