Every couple of decades, investors ask how long the stock market can keep climbing. With US indexes at historic highs, some experts warn of an impending crash, but their predictions often come too early, leaving them discredited as markets continue to rise.
Today, the focus is on the Magnificent Seven—Amazon, Alphabet, Nvidia, Meta, Microsoft, Apple and Tesla—which dominate the S&P 500. Signs of waning appetite emerged early this year as these firms borrowed to fund AI investments, but fear of missing out has kept most investors in the game.
Ludovic Subran, chief investment officer at Allianz, said SpaceX's $25bn bond sale after a record-breaking listing signals 'bubble territory'. Jeremy Grantham, a veteran investor, warned the AI bubble is about to burst and he is selling up. Dhaval Joshi of BCA Research cited the 'madness of crowds', noting that when investors' views become correlated, market accuracy is lost.
Joshi watches for a recession or aggressive interest rate rises as triggers for a crash. Grantham argues AI is like railways or the internet—overinvestment leads to realisation that it is a utility, not a goldmine. Google and Meta, primarily advertising businesses, are unlikely to sell enough ads to justify their share prices.
Disturbingly, the top 10 companies in the S&P 500 account for about 40% of its market capitalisation, well above the 27% peak during the 1999-2000 tech bubble. Yet the AI bubble has further to run because these firms are making huge profits.
