{"id":818,"date":"2025-11-26T14:06:06","date_gmt":"2025-11-26T06:06:06","guid":{"rendered":"https:\/\/www.chain258.com\/?p=818"},"modified":"2025-11-26T14:06:06","modified_gmt":"2025-11-26T06:06:06","slug":"is-the-ai-bubble-about-to-burst-not-yet-heres-why","status":"publish","type":"post","link":"https:\/\/www.chain258.com\/index.php\/2025\/11\/26\/is-the-ai-bubble-about-to-burst-not-yet-heres-why\/","title":{"rendered":"Is the AI Bubble About to Burst? Not Yet\u2014Here\u2019s Why"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Recent volatility in U.S. stocks, coupled with global media\u2019s relentless &#8220;AI bubble&#8221; narrative, has fueled widespread anxiety. Some even compare the current AI frenzy to the infamous dot-com bubble, amplifying fears. But is an AI bubble truly imminent? Let\u2019s break it down.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Key Takeaways:<\/strong>\u200b<\/h3>\n\n\n\n<ol class=\"wp-block-list\">\n<li>1.<strong>The recent U.S. market correction is driven by liquidity\u2014not AI overvaluation.<\/strong>\u200b Federal government shutdowns and Fed policy shifts are the real culprits.<\/li>\n\n\n\n<li>2.<strong>Two prerequisites for an AI bubble: fundamental cracks and liquidity crunch. Neither exists yet.<\/strong>\u200b<\/li>\n\n\n\n<li>3.<strong>The AI bubble debate should begin in mid-2026\u2014at the earliest.<\/strong>\u200b<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>U.S. Market Downturn: A Liquidity Crisis, Not an AI Bubble<\/strong>\u200b<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The U.S. stock market typically follows a &#8220;stocks vs. bonds&#8221; seesaw\u2014capital shifts between equities and fixed income. But the recent sell-off wasn\u2019t just a rotation; it was a&nbsp;<strong>&#8220;stocks and bonds double whammy&#8221;<\/strong>\u200b (both asset classes plummeted).From late October to mid-November,&nbsp;<strong>10-year Treasury yields rose sharply<\/strong>\u200b (bond prices fell), while stocks tumbled. Investors across the board rushed to deleverage, a classic sign of&nbsp;<strong>liquidity scarcity<\/strong>\u2014when markets lack the cash to sustain asset prices.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Phase 1: Government Shutdown (Oct 1 \u2013 Nov 12)<\/strong>\u200b<\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">The&nbsp;<strong>43-day federal shutdown<\/strong>\u200b (the longest since 2019) began when Congress failed to pass a budget due to partisan disputes over healthcare spending. While Treasury bond issuance continued,&nbsp;<strong>government spending froze<\/strong>, draining liquidity from financial markets.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>\u2022The\u00a0<strong>U.S. Treasury General Account (TGA) swelled to nearly $1 trillion<\/strong>, sucking cash out of the system.<\/li>\n\n\n\n<li>\u2022The Fed was still\u00a0<strong>shrinking its balance sheet<\/strong>\u200b (quantitative tightening), compounding the liquidity crunch.<\/li>\n\n\n\n<li>\u2022Result:\u00a0<strong>Bond yields spiked, stocks fell, and risk assets were dumped indiscriminately.<\/strong>\u200b<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Phase 2: Post-Shutdown Liquidity Panic (Nov 12 \u2013 Present)<\/strong>\u200b<\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">When the shutdown ended on&nbsp;<strong>November 12<\/strong>, the TGA began draining again, briefly boosting liquidity and lifting stocks. But the relief was short-lived.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>\u2022<strong>Investor Michael Burry (of\u00a0<em>The Big Short<\/em>fame) shorted Nvidia<\/strong>, claiming AI stocks were wildly overvalued. This spooked markets, sending AI-related stocks tumbling.<\/li>\n\n\n\n<li>\u2022Yet\u00a0<strong>crypto, gold, and other safe-havens also dropped<\/strong>\u2014unusual if the sell-off were purely AI-driven.<\/li>\n\n\n\n<li>\u2022<strong>The real issue? Fed policy uncertainty.<\/strong>\u200b President Trump withheld October CPI data (and hinted at never releasing it again) to pressure the Fed into cutting rates. But\u00a0<strong>Fed Chair Powell signaled no immediate rate cuts<\/strong>, creating market confusion.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Conclusion:<\/strong>\u200b The AI &#8220;bubble&#8221; narrative is a coincidence, not the cause. The downturn was&nbsp;<strong>primarily a liquidity crisis<\/strong>, exacerbated by political and monetary policy chaos.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Is the AI Bubble Real? Not in 2025.<\/strong>\u200b<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s assume the market correction wasn\u2019t about AI\u2014then&nbsp;<strong>where are the actual warning signs of a bubble?<\/strong>\u200bHistorically, bubbles burst when&nbsp;<strong>two conditions align:<\/strong>\u200b<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>1.<strong>Fundamental cracks<\/strong>\u200b (e.g., declining revenues, profitability issues).<\/li>\n\n\n\n<li>2.<strong>Liquidity withdrawal<\/strong>\u200b (tightening monetary policy).<\/li>\n<\/ol>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>1. AI Fundamentals: Still Strong<\/strong>\u200b<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>\u2022<strong>Capital expenditures (CapEx) are high\u2014but manageable.<\/strong>\u200b\n<ul class=\"wp-block-list\">\n<li>\u2022Yes, AI-related spending exceeds dot-com era levels, but today\u2019s tech giants are\u00a0<strong>far more profitable<\/strong>\u200b (unlike the money-losing dot-coms).<\/li>\n\n\n\n<li>\u2022AI CapEx is\u00a0<strong>~18% of revenue<\/strong>\u200b vs.\u00a0<strong>~33% during the dot-com bubble<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>\u2022<strong>No major earnings disasters yet.<\/strong>\u200b Unlike the dot-com collapse (triggered by crumbling profits), AI firms remain financially solid.<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>2. Monetary Policy: Still Loose (for Now)<\/strong>\u200b<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>\u2022The\u00a0<strong>dot-com bubble burst when the Fed aggressively hiked rates<\/strong>.<\/li>\n\n\n\n<li>\u2022Today?\u00a0<strong>The Fed is expected to stay dovish\u2014or even ease further.<\/strong>\u200b\n<ul class=\"wp-block-list\">\n<li>\u2022<strong>Potential Fed leadership change (Hassett, a Trump ally, may take over)<\/strong>\u200b could lead to\u00a0<strong>even looser policy<\/strong>.<\/li>\n\n\n\n<li>\u2022<strong>No immediate signs of a 2000-style rate shock.<\/strong>\u200b<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What to Watch in 2026<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If you\u2019re worried about an AI bubble, monitor these indicators:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u00a0<strong>Safe-haven assets (gold, crypto):<\/strong>\u200b If their prices\u00a0<strong>remain weak<\/strong>, liquidity is still tight.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>2026 Fed policy shifts:<\/strong>\u200b If\u00a0<strong>Hassett becomes Fed Chair and cuts rates too aggressively<\/strong>, inflation could rebound\u2014forcing a\u00a0<strong>2026 rate hike cycle<\/strong>, which might finally burst the AI bubble.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recent volatility in U.S. stoc&hellip;<\/p>\n","protected":false},"author":2,"featured_media":819,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,4],"tags":[24,204],"class_list":["post-818","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investment","category-policy-impact","tag-ai","tag-u-s-stocks"],"_links":{"self":[{"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/posts\/818","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/comments?post=818"}],"version-history":[{"count":1,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/posts\/818\/revisions"}],"predecessor-version":[{"id":820,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/posts\/818\/revisions\/820"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/media\/819"}],"wp:attachment":[{"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/media?parent=818"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/categories?post=818"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.chain258.com\/index.php\/wp-json\/wp\/v2\/tags?post=818"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}