AI hype intensifies — but signs of a bubble burst are alarming

The AI hype is igniting investors’ sentiment, pushing the US stock market to record highs while increasing the risks of rapid selloff, Bloomberg reported, citing Goldman Sachs Group’s trading desk. The trend, driven by a strong fear of missing out (FOMO), is at its highest levels since December 2024, causing investors to overlook risks like uncertainties in valuations, trade market, and the slowing labor market.

AI gains on optimism: Some 40% of clients surveyed expect the S&P 500 Index to outpace global peers in October, putting the bullish sentiment at its highest level since December 2024. The heavy-tech index closed on a record high 27 times from June to 3 October, primarily due to AI bullishness, according to Bloomberg’s data.

Going strong: Goldman Sachs clients indicated they plan to double down on their investments in the so-called “Magnificent Seven” tech companies like Amazon and Microsoft. Over 50% of people surveyed are eyeing AI infrastructure stocks, with the majority expecting momentum to outplay the S&P 500 by year-end.

BUT- Is the AI bubble about to burst? Signs of a peak bubble are now live, including massive capital expenditure by major tech companies and US stock market concentration, Ian Harnett says in the Financial Times. Flying-high stock prices, as well as in-sector companies sealing agreements with each other and purchasing one another’s products, are also among signs of a bubble burst, Harnett argued.

Others concur: “While almost all indicators point up, this setup also increases the probability of rapid unwinds down the road. Buyers beware,” Oscar Ostlund, global head of content strategy, market analytics and data science for Goldman’s digital platform Marquee told Bloomberg.

History repeats itself: The pattern mirrors historical tech revolutions, most notably the TMT (dot-com) bubble of the late 1990s, which also saw a boom in infrastructure spending before it reached its endgame, Harnett added. Tech bubbles tend to burst not because the technology itself fails, but due to external pressures like regulation, competition, or slowing customer demand, he said.

The long-term scene could be more nuanced. A burst, while painful for late-stage investors, is often a necessary part of the innovation cycle, Harnett argues. The “creative destruction” inherent to bubbles ends up giving access to new technologies at lower prices, leading to the technology being embedded in society, he added.

MARKETS THIS MORNING-

Asian markets are mostly in the green this morning. Japan’s Nikkei is leading the gains with a 4.5% increase in early trading, following a record high yesterday after pro-stimulus Sanae Takaichi was picked to head the ruling Liberal Democratic Party — and possibly become Japan’s first female prime minister. Meanwhile, Wall Street futures are little changed amid the US government shutdown.

THE CLOSING BELL-

The EGX30 rose 0.8% at yesterday’s close on turnover of EGP 4.2 bn (5.8% below the 90-day average). Local investors were the sole net buyers. The index is up 25.1% YTD.

In the green: ADIB (+4.1%), Misr Cement (+3.7%), and Egypt Aluminum (+2.2%).

In the red: Telecom Egypt (-1.6%), Ibnsina Pharma (-1.3%), and Rameda (-0.9%).

CORPORATE ACTIONS-

ADIB Egypt’s general assembly approved increasing the bank’s issued and paid-in capital to EGP 15 bn, up from EGP 12 bn, according to a disclosure (pdf) to the EGX. The EGP 3 bn increase will be distributed over 300 mn shares at a par value of EGP 10 per share and an issuance cost of EGP 0.1 per share.