According to a Wall Street Journal report cited by BlockBeats on Aug. 2, the U.S. market has repeatedly seen bubbles form around specific sectors and investment themes in recent years, but those localized blowups have usually not pulled down the broader stock market.
Memory-chip trade surged and broke, but the broader market held up
The report said the latest memory-chip bubble expanded rapidly and then burst within about four months. The move came with sharp swings in prices and left one hedge fund in crisis. Even so, the S&P 500 is only 1.6% below its all-time high, and the equal-weight S&P 500 reached a new high last week.
The retreat in AI-related stocks has also been almost entirely offset by gains in other sectors, according to the report.
A long list of thematic bubbles over the past decade
The Wall Street Journal said U.S. markets have gone through a series of bubbles over the past 10-plus years, including 3D printing, China concept stocks, low-volatility products, special purpose acquisition companies, clean energy, cannabis, space, crypto assets, and AI stocks.
Among the names cited, Strategy has fallen 83% from its peak, Trump Media shares have dropped 89%, and SK Hynix had fallen as much as 55% before rebounding last Friday.
Why the financial system has avoided a major shock so far
The report said easy money, speculative demand, and expectations around new technologies helped fuel those bubbles. In recent years, margin debt and leveraged exchange-traded funds have amplified the swings.
Still, these sector-specific bubbles have not caused severe economic damage, mainly because most of them were not financed with large amounts of debt. After they burst, losses were borne mostly by investors, while the banking system showed no obvious signs of stress.
Russell Napier warns AI investment is moving into riskier territory
Macro strategist Russell Napier said the banking system remains healthy, which means the market continues to have more credit available to create the next bubble.
At the same time, the report said AI investment is pushing the market into a more dangerous zone. Data-center spending over the next four years could reach $7 trillion. If productivity gains from AI are not enough to support investment on that scale, capital misallocation could do serious damage to the economy.
The report added that as AI buildout becomes increasingly dependent on debt financing, a broader AI investment bubble, if it is eventually shown to be one, could hit the financial system when it breaks. In that case, the wider market would be unlikely to stay insulated.