I think the bigger question is when, because it seems that every time things are going sideways, the market just pops back up in 2-3 weeks. Just take a look at the Iran war which is still going on, but we’re hitting new ATHs.
Liquidity is drying up which is related to the increase of the bond markets and yields. The Feds are very wary to print more then a minimum while the market is twisting about as it has been the last year or two. A correlation I have not seen mentioned is the capital flow and bonds. This time there is not the economy to pop back up the markets without incurring more significant, and unpayable, debt.
Whatever the specific catalysts will be, and when these will show, up I do agree that this is a period of peak financial risk. For most, it doesn't feel like it - until they experience it. Don't get blindsinded!
The move in the markets this year especially is concentrated no doubt, revenue backlogs are impressive for those that are positioned in the AI, but overhang now is financing and execution so we will see what awaits
If I had to take a position - I would reckon we are in the 5/6th inning of the metaphorical baseball game of the AI trade.
A lot of Fridays action is profit taking, and the market is preparing to absorb some major IPOs in the coming weeks - a lot of the market feels like its positioning itself for new entrance. On top of that I think we are going to see lots of major tech companies make the transition from Asset Light, to Asset Medium or even Asset Heavy.
There are multiple stories happening the markets right now - and the memory market (no pun intended) is differently positioned as it is a shortage situation as opposed to a market structure situation. At some point it will resolve itself, but the demand for memory remains strong in the medium term.
Further, South Korea's stock market is primarily driven by these technology organizations - in essence their stock market is almost a story of two tales comparable to the US market: Mag 7 vs 493, Korea's indicies offer a similar dichotomy.
There are other indicators we can point to the market being over leveraged/over valued on a variety of indicators, however we must remember that the market is an auction at heart. And market participants continue to negotiate price. As long as the negotiation continues, which we expect it will, we can continue to look for opportunities where the market finds itself in a state of imbalanced - versus a state where the market agrees on price.
We might be seeing elements of an imbalanced market, but with a movement a quick as we had recently, I think we view this as a negotiation and healthy absorption of prices with the buyers in control of the negotiation until we end up meaningfully near the March 31, 2026 level.
Until then, we continue to be positioned appropriately!
Ps - my best guess is that the market will have no choice but to hike sometime in the next 12-18 months, and when they do, we likely see 2 or 3 25bps hike, not a singular hike.
I am, financially, the dumbest guy in these comments. But having written that, the article seemed to me to be a clear, rational analysis.
The message to me was that risk is now synchronized globally. The risks that flow from this, even without secondary and tertiary events, are massive; like 2008 level if not higher. More, every rational actor knows that the party is about to end in a bloodbath.
There are, therefore, only two unknowns: how bad, and what will be the trigger. There are so many to choose from; but whichever it ends up being, its origin will be traceable to Trump and the Americans.
Look for serious, richly deserved blowback on America when this happens. I have the popcorn on hand to watch the fireworks.
A chart pattern alone rarely causes a crash.
The bigger question is whether liquidity, credit, and financial conditions are confirming the warning or contradicting it.
I think the bigger question is when, because it seems that every time things are going sideways, the market just pops back up in 2-3 weeks. Just take a look at the Iran war which is still going on, but we’re hitting new ATHs.
Liquidity is drying up which is related to the increase of the bond markets and yields. The Feds are very wary to print more then a minimum while the market is twisting about as it has been the last year or two. A correlation I have not seen mentioned is the capital flow and bonds. This time there is not the economy to pop back up the markets without incurring more significant, and unpayable, debt.
Whatever the specific catalysts will be, and when these will show, up I do agree that this is a period of peak financial risk. For most, it doesn't feel like it - until they experience it. Don't get blindsinded!
It feels like the possible upside in the short term doesn’t make up for the possible downside!
A defensive rotation can absolutely compress AI valuations without killing growth — it can redirect growth into new sectors.
This is how every major market cycle evolves.
---
🛡️ What a defensive rotation really signals
When capital moves into staples, healthcare, utilities, and low‑beta names, it usually means:
• Investors want earnings certainty
• They’re questioning the durability of the current leaders (AI megacaps)
• They’re reallocating inside the market, not exiting it
This is rotation, not panic.
A crash requires:
• Credit stress
• Liquidity freeze
• Forced deleveraging
• Systemic contagion
None of those are flashing.
---
🤖 Why AI is vulnerable right now
AI megacaps are priced for perfection. That creates fragility.
• Capex is ballooning — hyperscalers are spending tens of billions per quarter
• Margins are compressing — GPUs are expensive, power is expensive
• Narrative is saturated — everyone is already “all in”
• Valuations assume flawless execution
So when investors rotate defensively, AI gets hit first because it’s the most crowded, most expensive trade.
---
🌱 Where growth emerges when AI cools
This is the part you’re sensing intuitively — and it’s historically accurate.
When a dominant sector pauses, capital hunts for the next asymmetry. The likely beneficiaries:
• Industrial automation — robotics, logistics, reshoring
• Energy transition metals — copper, silver, nickel, rare earths
• Utilities with data‑center load growth — AI is a power story as much as a compute story
• Defense — geopolitical budgets expanding globally
• Biotech — tends to rally when rates stabilize
• Small‑cap cyclicals — outperform when megacaps stall and recession risk is low
This is the “growth elsewhere” you’re talking about — and it’s real.
---
🏚️ What about autos and housing?
These sectors are already weakening:
• Auto delinquencies rising
• Housing affordability at multi‑decade lows
• Inventory creeping up
• EV demand flattening
But here’s the key:
Autos and housing can deteriorate without triggering a market crash as long as credit markets stay orderly.
Right now, credit spreads are not blowing out.
---
📉 So does this mean a crash is coming?
Not based on the signals we have.
This looks like:
Rotation, not rupture.
AI may cool.
Defensives may strengthen.
But the market can still find new leadership.
---
🔮 The non‑obvious insight
Every major bull market has multiple leadership phases.
If AI megacaps stall, the next leaders are historically:
• Industrials
• Energy
• Materials
• Small caps
The move in the markets this year especially is concentrated no doubt, revenue backlogs are impressive for those that are positioned in the AI, but overhang now is financing and execution so we will see what awaits
Thanks so much, this is a fantastic piece.
Do you think the coming IPO's will have an effect on a potential market crash? Definitely feeling some shaky signs from the market today.
If I had to take a position - I would reckon we are in the 5/6th inning of the metaphorical baseball game of the AI trade.
A lot of Fridays action is profit taking, and the market is preparing to absorb some major IPOs in the coming weeks - a lot of the market feels like its positioning itself for new entrance. On top of that I think we are going to see lots of major tech companies make the transition from Asset Light, to Asset Medium or even Asset Heavy.
There are multiple stories happening the markets right now - and the memory market (no pun intended) is differently positioned as it is a shortage situation as opposed to a market structure situation. At some point it will resolve itself, but the demand for memory remains strong in the medium term.
Further, South Korea's stock market is primarily driven by these technology organizations - in essence their stock market is almost a story of two tales comparable to the US market: Mag 7 vs 493, Korea's indicies offer a similar dichotomy.
There are other indicators we can point to the market being over leveraged/over valued on a variety of indicators, however we must remember that the market is an auction at heart. And market participants continue to negotiate price. As long as the negotiation continues, which we expect it will, we can continue to look for opportunities where the market finds itself in a state of imbalanced - versus a state where the market agrees on price.
We might be seeing elements of an imbalanced market, but with a movement a quick as we had recently, I think we view this as a negotiation and healthy absorption of prices with the buyers in control of the negotiation until we end up meaningfully near the March 31, 2026 level.
Until then, we continue to be positioned appropriately!
Ps - my best guess is that the market will have no choice but to hike sometime in the next 12-18 months, and when they do, we likely see 2 or 3 25bps hike, not a singular hike.
I am, financially, the dumbest guy in these comments. But having written that, the article seemed to me to be a clear, rational analysis.
The message to me was that risk is now synchronized globally. The risks that flow from this, even without secondary and tertiary events, are massive; like 2008 level if not higher. More, every rational actor knows that the party is about to end in a bloodbath.
There are, therefore, only two unknowns: how bad, and what will be the trigger. There are so many to choose from; but whichever it ends up being, its origin will be traceable to Trump and the Americans.
Look for serious, richly deserved blowback on America when this happens. I have the popcorn on hand to watch the fireworks.
Yup! Big AI bubble.
Excellent piece.