If an AI Bubble Forms and Pops, the Mag 7 Won't All React the Same Way

AI bubble concerns are raised alongside strong semiconductor and AI-related market moves. Shorting the most heated AI chip names is presented as risky because accurately timing a bubble top is difficult with put options. The AI revolution is viewed as real, but certain market corners may become overheated and require a sharp correction. A semiconductor ETF that surged substantially could pull back without necessarily dragging all AI firms down. Broader market conditions are described as relatively sober, and several large, widely held “Magnificent Seven” stocks are characterized as not excessively priced, with some cheaper members offering deals. Custom silicon efforts by hyperscalers are cited as supporting relative value that is not fully reflected in hype.

"For the average retail investor, the big takeaway might not lie in shorting the heated names (that seems like a recipe for disaster, given that timing a bubble is next to impossible to do with enough precision to make big money in put options), but taking a moment to think about what the shrewd move is after a parabolic (or completely vertical) move is in the books."

"Given the market action we've seen this year, there's every reason to believe that the AI revolution is real. But just like the dot-com boom, there are certain corners of the market that stand to get way overheated, bringing forth the need for a vicious correction or crash. But, of course, a crash in pockets of the market doesn't have to drag everything down."

"For the most part, I view much of the market as quite sober right here. And if something like the VanEck Semiconductor ETF ( NASDAQ:SMH | SMH Price Prediction), which spiked close to 30% in a month or 55% year to date, were to give back much or all of the gains, I wouldn't expect other AI firms to fall in sympathy."

"Arguably, some of the cheapest members of the group stand out as pretty great deals with not all that much in the way of AI hype that's baked in. And when you consider the custom silicon efforts going on in the modestly-priced hyperscalers, I do think that there's considerable relative value that's pretty much hiding in plain sight."

Read at 24/7 Wall St.