When crowded trades unwind, exits get blocked.
That was the story on Tuesday, as AI narratives got sold. So far, the US exceptionalism and the AI narratives have always won.
But with stretched valuations, any hint that AI is not delivering and earnings may not follow from huge AI linked expenditures, causes sharp falls.
That is what happened on Tuesday .
The key question is, will the massive liquidity and buy-any-dip retail money prove this to be just a tiny blip, and the crowded trade will continue?
Or will there be a bubble burst coming up?
We will know post the event .
Retail dip buying Enthusiasm meets Liquidity meets AI narratives is too potent a combination to take head on.
So MIT saying 95% of generative AI implementations have not added any economic value to the companies who invested in them, or Open AI’s Sam Altman saying that an AI bubble is forming, with overexcited investors investing at higher than Dot Com valuations, may be the canary in the mine or just one more blip in the multi year story of US Big Tech exceptionalism. Too early to say, but the exit doors suddenly looked very small. The same doors were huge when the investors were entering these trades and making them the most crowded trades in history.
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This is a blip or an unwind that will determine the trajectory of US and global markets, as sentiment will be riding on this.
