r/stocks
XLK - What a bubble looks like
Author warns of an AI/tech bubble in XLK, citing dot-com crash parallels, extreme SPY concentration, and potential Fed rate hikes.
- The AI/tech sector is showing parabolic chart patterns indicative of an unsustainable bubble.
- Extreme market concentration (tech at 40% of SPY) historically precedes violent corrections.
- Potential Federal Reserve rate hikes pose a significant risk to the current market trajectory.
To anyone wondering if the AI / tech bubble is real, open your XLK chart and zoom out. (max time on Robinhood conveniently just happens to go back to January-March 2000 when the dot com bubble popped.)
These are the tech stocks that have now bloated to make up 40% of the current SPY. (Notably the same percentage of SPY that gets violently corrected historically)
This chart is a complete parabola ending in a vertical line. Anyone who thinks this line just continues upward for any meaningfully extended period of time is living in a fantasy. Im not saying there aren’t still some gains to be made, but the laws of physics and reversion to the mean are real.
To all the people who say it won’t matter in 10 years and “just zoom out”, take a look at the length of this dip post-2000 and ask yourself if you have the stomach for that.
I’m not saying we’re at a dot com level bust necessarily, but everyone should be clear eyed about what’s happening. If the fed hikes rates, which is looking increasingly likely, this picture likely changes quickly.
Reddit: "IT'S A BUBBLE OMAGERD"
So what are you doing?
Reddit: (crickets)
The result is these posts get the same response because they're really the thousandth variation on the same post. "THE MARKET IS GOING TO STOP GOING UP AT SOME POINT AND CRATER." Thanks?
I'm not saying that the market isn't overextended either but what is the takeaway from reading this sort of generic prediction, especially in a sub where a substantial % have been relentlessly negative for the last couple of years?
I’m taking gains, holding a small amount of my favorite newer companies and rotating the meat of my portfolio into late cycle sectors (XLP, XLV, XLU), materials which I think will hold value, and spaxx. I’m not a day trader so this market terrifies me lol. I’d rather be wrong and miss some gains than lose my shirt.
Thank you, I appreciate the specifics. Good luck and hope you do well.
What will change exactly if the fed raises interest rates? Are all these billionaires with trillion dollar companies going to stop the ai/datacenter buildouts? I doubt it personally. This feels like a healthy correction and nothing more.
\>> What will change exactly if the fed raises interest rates?
They aren't building with their money. They're using loans. If interest rates go up then they take out fewer and smaller loans. Progress stagnates. Suppliers that are over-extended but betting on the big payoff at the end won't be able to pay the higher costs and go out of business. Projects get stuck while new suppliers are found. Venture capitalists pull back to invest in bonds paying higher returns.
Yeh it could all tumble down now. But it could also double from here and likely will before this is all really over like the dotcom bubble.
So far the bubble is concentrated in semis/ai. It likely gets broader and more volatile before it ends.
"meaningfully extended amount of time" is awfully subjective. Could double before it halves, you know?
I know. I hate it lol
These tech stocks are being repriced because they have proven that ai investments pay off. This new revenue stream isn't going away. This is the new norm.
The bubble argument is fair, but charts alone can make everything look obvious after the move already happened. The harder question is whether earnings concentration is matching price concentration. If the biggest tech names are also carrying a huge share of profit growth and buybacks, then it is expensive and crowded, not automatically 2000. The risk is less that AI is fake and more that expectations have become too clean for any messy quarter.
Thanks for giving me my dose of market doom for today. Now I can go live.
an even more concentrated version of that bubble in etf terms is soxx or smh.
I do think we're at a dotcom level bust though.
past performance is not an indicator for future performance. this also goes for loses and crashes