"A top Wall Street analyst has sounded an alarm over the U.S. equity bull market, warning that its remarkable run is built on a precariously narrow foundation: a surge in spending on, and optimistic assumptions about, infrastructure for artificial intelligence (AI). This spending has fueled a boom in the shares of most of the so-called Magnificent 7 and a few dozen related businesses, which have now come to account for roughly 75% of the S&P 500's returns since the rally of the last few years began."
"The commentary on September 29 by Morgan Stanley Wealth Management's chief investment officer, Lisa Shalett, frames the current market boom as a "one-note narrative" almost entirely dependent on massive capital expenditures in generative AI, raising questions about its durability as economic and competitive risks start to mount. Shalett's critique came squarely in the middle of some people in the AI field - and many financial commentators around Wall Street -fretting at market exuberance and beginning to talk openly about a bubble."
"In an interview with Fortune, Shalett said she was "very concerned" about this theme in markets, saying her office had broadened from a belief that the market would only bid up seven or 10 stocks to roughly 40. "At the end of the day ... this is not going to be pretty" if and when the generative AI capital expenditure story falters, she said."
The recent U.S. equity rally is heavily concentrated in companies benefiting from a surge in spending on AI infrastructure. Most gains have come from the Magnificent 7 and a few dozen related firms, accounting for roughly 75% of S&P 500 returns since the rally began. Market enthusiasm centers on massive capital expenditures for generative AI, and the cohort of impacted stocks has broadened from an expectation of seven to ten to about forty. Rising economic and competitive risks increase the potential for a severe market correction or a ‘‘Cisco moment’’ within about two years.
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