Remember when everyone thought the internet would change everything forever? Well, spoiler alert: it did, but not before completely melting down first in 2000. Now we’ve got AI doing the victory lap, and some very smart people are starting to get those familiar “uh oh” feelings.
Tom Essaye from Sevens Report Research (the guy who advises Wall Street’s biggest players) just dropped some uncomfortable truths about our AI obsession. And honestly? It’s giving me major déjà vu vibes.
Here’s the thing: every market bubble in history has had a story. The internet was going to revolutionize commerce! Real estate only goes up! And now? AI is apparently going to print money forever across every sector imaginable. Sound familiar?
The Semiconductor Reality Check
Essaye’s got a clever way to check if the AI hype is actually healthy: look at semiconductor stocks. Think about it – if AI is really the golden goose everyone claims, then chip stocks (the actual brains behind AI) should be absolutely crushing it, right?
Plot twist: they’re not.
The PHLX Semiconductor Index (SOX) – basically the cool kids’ table of chip stocks – is still sitting below its July 2024 highs. Meanwhile, the S&P 500 has climbed 14% higher. That’s like saying the engine is broken but the car is somehow going faster. It doesn’t add up.
“This bull market in equities has a serious problem,” Essaye warns, and he’s not wrong. If the thing supposedly driving the entire market rally (AI) can’t even keep its core components (chips) moving upward, what exactly are we celebrating?
The Economic Elephant in the Room
Here’s where things get spicy: bubbles love to party hardest right before the economic music stops. And guess what? The economic DJ is starting to pack up.
Job growth has been pretty meh lately – August’s payroll data was basically a collective shrug. Unemployment claims are creeping up like that friend who “just wants to crash for a few days” but never leaves. Classic late-cycle vibes.
Essaye points out that the S&P 500 has rallied 85% since October 2022. That’s not growth; that’s a rocket ship. And rockets, as we all know, eventually run out of fuel.
The Bottom Line
Look, I’m not saying AI isn’t revolutionary – it absolutely is. But revolutionary technology and sustainable stock prices don’t always play nice together. Just ask anyone who bought Pets.com stock.
The warning signs are flashing: stretched valuations, diverging performance between the story and the stocks that should benefit most, and an economy that’s starting to look a little wobbly. If semiconductor stocks start seriously tanking, Essaye thinks the broader market won’t be far behind.
Maybe it’s time to pump the brakes on the AI euphoria and remember that even the best technologies can be terrible investments when everyone’s already priced in perfection. Just saying.