25.02.25 - Burst of the AI bubble
From cryptocurrencies to tech stocks, the market sell-off is intensifying, driven by sharp declines in AI-related stocks - some of which have dropped over 30% in recent days after hitting record highs.
Weak consumer data released this afternoon in the U.S. reinforces concerns about a slowing economy and adds pressure.
Markets: AI stocks under pressure; broader tech weakness weighs on the Nasdaq, down 1.5%; Flight to safety: with US 10-year yields dropping below 4.3% and safe haven currencies Swiss franc and yen strengthening.
My View: Last week was not my first warning about excessive speculation in AI and other high-risk assets, including high-yielding corporate bonds. Almost a year after the first wave, it seems that the burst of the AI bubble gets real in form a second wave.
Market sentiment reached an “extreme fear” level. However, markets are just about to start a correction coming off their record highs. Normally this sentiment level is reached after a several days of a correction. This time, things are different. If the cycle of forced unwinding gains momentum and reaches the broader market, fear could persist for longer.
With the Swiss franc strengthening, I closed my tactical long position in the British pound, opened mid January, realizing a profit of 1.5%, a nice amount in absolute terms.
Today marks also a premier in my investment career. Never ever before I switched directly from a long, directly into a short position. The speculative up-move of Thyssenkrupp’s stock price triggered this shift. Taking profit of the remaining position in two steps (EUR 7.116/ 7.072), then open the short position at EUR 7.222. Extreme market moves come along with opportunities.
A key event is going to take place on Wednesday this week. After market close, Nvidia will release its latest quarterly earnings. The outcome could either stabilize the market or, if the numbers disappoint, intensify the pressure on semiconductor and tech stocks.
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