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Chatters of an AI bubble have exploded over the last several weeks but asset prices have mostly outrun those fears, with the S&P 500 notching multiple record highs in October.
That momentum slowed Tuesday, though, as several prominent market watchers seemed to acknowledge the froth:
- Goldman Sachs CEO David Solomon warned of a double-digit drawdown for stocks
- Morgan Stanley CEO Ted Pick similarly cautioned about a correction
- “Big Short” investor Michael Burry revealed a bearish position against Palantir
- ARK Invest’s Cathie Wood reportedly sold 38,000 shares of Palantir ahead of its earnings results
The tech-heavy Nasdaq Composite fell 2 percent and Palantir dropped 9 percent. Meanwhile, bitcoin slipped below $100,000 for the first time since June.
This raises two questions:
- Does this mean there’s a tech bubble after all?
- If so, is that bubble now popping?
To the first question, my view is no.
As Opening Bell Daily readers know, the S&P 500’s P/E ratio remains well below dot-com levels.
At the same time, single-name Big Tech leaders like Nvidia, Apple and Microsoft have far lower valuations compared to their equivalents back in 2000, while the companies leading the charge in AI command some of the largest balance sheets in history.
Still, half of Wall Street will take the opposing position on that.
As far as the sell-off this week, I’d more readily point to the latest slate of macro-political events than a bubble popping:
- Jerome Powell dashed hopes for a guaranteed December rate cut
- President Trump’s tariff battle is unfolding in the Supreme Court
- The government shutdown is set to be the longest on record
- The economic data blackout could be taking its toll on markets
- Regional banks are coming off a bout of fraud and bankruptcy issues
Those headwinds hitting all at once would hinder a bull market in any era at least temporarily.
But using a pullback as an excuse to call “bubble” feels misguided — particularly as S&P 500 earnings continue to crush estimates and recession odds have shrunk all year.
Expecting stocks to march higher in a straight line seems far more risky.
