Warnings about a late-stage AI bubble are building on Wall Street, with terms such as "crazy market" and "irrational season" appearing more frequently as concerns grow over a possible break in the current rally. Capital Economics said several market indicators are now nearing levels seen at past bubble peaks and projected that the S&P 500 could start falling next year, eventually dropping at least 30% from its high.
Recent stock moves have added to that anxiety. On July 30, Microsoft added $450 billion in market value in a single day. The following day, Apple lost $360 billion while Amazon gained $388 billion. Data from Acadian Asset Management showed stock-level dispersion in the U.S. market has risen to its third-highest level in nearly 2,850 trading days, behind only the 2020 vaccine rally and the 2025 DeepSeek shock.
The market is also watching the Federal Reserve, which could raise rates by 25 basis points on Wednesday for the first time since July 2023. UBS expects the decision to pass by a 10-2 vote, with two officials potentially dissenting. Capital Economics said more tightening would make the current AI-driven rally look even more like the dot-com bubble around 2000. It also pointed to surging capital spending by hyperscale cloud companies and said the free cash flow of the four largest hyperscale cloud service providers could turn negative by 2027.
BlockBeats reported on Sept. 15 that Wall Street has recently seen warnings of a "crazy market" and an "irrational season," as concerns build that the AI bubble could be nearing a breaking point.
Capital Economics said several market indicators are now close to levels seen near historical bubble tops. The firm expects the S&P 500 to begin declining next year and eventually fall at least 30% from its peak.
Sharp stock dispersion adds to concern
Recent moves inside the U.S. equity market have deepened that anxiety. On July 30, Microsoft added $450 billion in market value in a single day. The next day, Apple lost $360 billion in market value, while Amazon added $388 billion.
According to data from Acadian Asset Management, dispersion in U.S. stock volatility has climbed to the third-highest level in nearly 2,850 trading days, behind only the 2020 vaccine rally and the 2025 DeepSeek shock.
Fed decision in focus this week
At the same time, the Federal Reserve could raise rates by 25 basis points on Wednesday, which would mark its first rate hike since July 2023. UBS expects the decision to pass by a 10-2 vote, with two officials likely to oppose the move.
If the Fed tightens policy further, Capital Economics said the current AI rally would look even more similar to the dot-com bubble around 2000.
Cloud spending seen as another risk signal
Capital Economics also said capital expenditures by hyperscale cloud computing companies continue to surge. The firm expects the free cash flow of the four largest hyperscale cloud service providers to turn negative by 2027, a sign that AI bubble risks are still building.
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