Santoli: AI bull market almost surely needs tech stocks to recover to keep advancing — SkimNews
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- Mike Santoli argues that the AI-built bull market will almost surely need AI stocks to recover, noting that a prolonged period of equal-weight S&P 500 outperformance is usually a bear market.
- Nasdaq-100 closed Monday at its 200-day moving average and nearly 11% below its record high, while the Philadelphia Semiconductor Index fell 3.8% and finished below its late-July low.
- Walmart, Berkshire Hathaway and Eli Lilly collectively added $550 billion in market value over the past month, nearly offsetting Alphabet's loss; the rotation protected the S&P 500 from an appreciable setback but left it near May levels despite two earnings seasons showing 30% annual profit growth.
- Morgan Stanley estimates that AI-related stocks remain near 45% of the S&P 500 weighting; the index's forward P/E has fallen to 18.5 from 23 a year ago, while the Nasdaq-100 trades at 20 times earnings, its narrowest premium to the S&P 500 in nine years.
- Nasdaq-100 relative-strength readings are as oversold as at the March 30 and July 29 turning points, while tech-fund positioning has fallen below neutral; JPMorgan's Jason Hunter advised clients to stay defensive until a bottom or capitulation appears.
- Nvidia was the stock to own when GPUs were the scarce resource from 2023 through 2024; Jensen Huang now says capital is the constraint, leaving no scarce asset to buy and raising costs as mega-caps turn free-cash-flow-negative.
- Apple outperformed the Nasdaq-100 by nearly 20 percentage points over the prior six months because it refused the aggressive AI-capacity spending spree, preserving free cash flow; peer declines later narrowed its free-cash-flow-yield advantage.
Why it matters: The $550 billion rotation into Walmart, Berkshire Hathaway and Eli Lilly has cushioned tech weakness at index level, but the S&P 500 has stayed near May levels. With AI-related stocks still around 45% of the index and the Nasdaq-100 premium at a nine-year low, further advances depend on AI leadership recovering.
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