Is AI the New Tech Bubble?

Key Takeaways

  • Market turns bearish on AI stocks, spurring fears of a new tech bubble
  • Nvidia stock drops more quickly relative to small caps index
  • StoneX’s Vincent Deluard said this isn’t a redux of the 1990s bubble

In a recent Bloomberg piece, Vincent Deluard, Director of Global Macro Strategy at StoneX, offered his views on whether the market is facing a new tech bubble like the one that burst in the early 2000s.

From its June peak to late July, AI leader Nvidia Corporation's stock had dropped more than 20%, while small caps index, the Russell 2000, was up nearly 12% over the same period. This market movement, known as "rotation," means money moves from one market sector to another.

Deluard saw some parallels between AI and the dot-com bubble of the late 1990s; however, he noted significant differences between the market then and now. Money had also moved across assets, from expensive tech stocks to less expensive value stocks, but he said the U.S. economy was in a downturn.

In the 2000s, there was a recession, with deep interest rate cuts spurred by the September 11, 2001, terrorist attack. Deluard believes that had the attack not happened, the Fed would have instituted less substantial rate cuts, and the economy would have experienced a soft landing.

Deluard also stated that today's fiscal policy is far more stimulative than that of the 1990s. The U.S. was operating with a fiscal surplus then. Today, the lack of that surplus due to excessive government spending helps create another buffer against an AI bubble burst.

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