Not a Bubble. A Crowded Exit

Last week the headlines declared the AI bubble had popped. We read the market differently. This is not 2008, and it is not a bubble bursting. It is a crowded trade being unwound.

The surface looks calm. The S&P 500 sits just 2.7% below its high, and semiconductors are still up 50% this year despite a 15% pullback over the last nine sessions. Banks report card spending up around 10% and healthy lending. What fell was the AI trade.

Underneath, the stress is concentrated. Hedge fund leverage has more than doubled since 2023, and everyone owns the same names. CoreWeave’s debt now yields about 15% and its stock is in a 60% drawdown. The deeper issue is dependence: Anthropic and OpenAI drive 70% of hyperscaler AI revenue.

The debate now comes down to two readings. The bull case points to contracts, not forecasts: Micron has signed agreements covering over 35% of revenue through 2030, Amazon says compute is sold out beyond 2028, and Nvidia guided to 70% growth. The bear case says demand was inflated. Token maxing is over, open weight models cost a tenth as much, and nobody has a moat. Anthropic’s quarterly growth slowed from 140% to 43%, and a price war is a real risk.

Macro adds pressure. CPI and PPI ran hot, oil keeps climbing on Middle East risk, and markets now price a December hike. Yet when AI wobbled, the 10 year yield fell from 5.4% to 5.1%. Fear of AI outweighed fear of inflation.

Our takeaway is this. The pain likely runs into hyperscaler earnings and the midterms as funds keep shedding risk. Bonds are the hedge for that stretch. A recession is possible if the AI labs stumble, but the banks are fine, and a systemic collapse is not the base case. Stay patient and disciplined.