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Which of the Magnificent Seven Has Proven Most Resilient Since the February 21 Index Adjustment?

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Cathie Wood's Ark Investment Management executed a notable portfolio rebalancing in Q4 2025, selling $15.8 million in Meta stock and 45,356 Tesla shares <a href="https://finance.yahoo.com/news/cathie-wood-sells-15-8-040700221.html">according to reports</a>. This strategic shift came as the Ark Innovation ETF (ARKK) posted a strong 42% year-to-date gain, significantly outperforming the S&amp;P 500's return during the same period. However, the long-term perspective tells a different story: ARKK's five-year annualized return remains deeply negative at -6.45%, compared to the S&amp;P 500's robust 14.86% over the same timeframe. The stark contrast between short-term momentum and long-term results reflects the mixed market conditions facing high-growth portfolios in 2025. While ARKK's recent surge capitalized on speculative enthusiasm for disruptive technologies, its underlying five-year underperformance reveals persistent challenges in translating innovation themes into sustained shareholder returns. Analysts note this rebalancing signals a recalibration toward AI-focused bets as Meta stock was trimmed post-addition, despite recent declines – suggesting confidence in artificial intelligence's fundamental upside despite near-term volatility. This pivot aims to address the portfolio's fundamental tension: capturing short-term market enthusiasm while navigating the decade-long discipline required for technology disruption to translate into lasting value.<visualization data='{"components":[{"show_type":"jgyNewLowcode","config":{"type":"iwcapp/stockBackTestTool","version":"0.0.3","url":"//cdn.ainvest.com/frontResources/s/foiegras/stockBackTestTool/0.0.3/stockBackTestTool@0.0.3index.js"},"data":{"columns":[{"index_name":"strategy_basic_info","key":"strategy_basic_info","type":"Object"},{"index_name":"backtest_condition","key":"backtest_condition","type":"Object"},{"index_name":"backtest_result","key":"backtest_result","type":"STR"}],"datas":[{"strategy_basic_info":{"name":"Threshold-Based Rebalancing Strategy (Long Only)","description":"A long-only rebalancing strategy for ARKK: enter when allocation deviates &gt;5% from target, exit when allocation returns within ±5%, or after 20 trading days, or if TP +5% or SL −3% is hit. Backtested over the past 5 years."},"backtest_condition":{"object":{"display_name":"Object","type":"ticker","ticker":["ARKK"]},"open_signal":{"display_name":"Open Signal","type":"criteria","criteria":"Enter when ARKK allocation deviates &gt;5% from target (100%)"},"sell_signal":{"display_name":"Close Signal","type":"criteria","criteria":"Exit when allocation returns within ±5%, or after 20 trading days, or TP +5%, SL −3%"},"risk_control":{"display_name":"Risk Control","parameters":{"take_profit":{"display_name":"Take-Profit","value":5,"unit":"%"},"stop_loss":{"display_name":"Stop-Loss","value":3,"unit":"%"},"max_holding_days":{"display_name":"Hold Days","value":20}}}},"backtest_result":"https://cdn.ainvest.com/backtest/agent/session/784562/1800109709/9814079b-fbe9-49e8-b72c-8012e876f360/arkk_rebal_backtest_5y.json"}]},"uuid":"1765778595579"}],"page":{"layout":{"layout_mode":"grid","layout_data":"[{\"uuid\": \"1765778595579\", \"show_type\": \"jgyNewLowcode\"}]"}}}'></visualization><h2>Rebalancing Rationale: A Risk-Reward Tradeoff</h2>Building on our discussion of portfolio volatility, the mechanics of maintaining target allocations become critical. Historical data on Cathie Wood's Ark Tech Portfolio demonstrates a clear tradeoff between different rebalancing approaches. From November 2014 through July 2025, strictly annual rebalancing delivered a solid 15.43% annualized return <a href="https://www.lazyportfolioetf.com/allocation/ark-tech-portfolio-rebalancing-strategy/">according to analysis</a>. However, this came with a significant downside: maximum drawdowns reached -71.13%. Threshold-based rebalancing, which triggers action only when an asset class deviates by a preset amount (like 5%), offered a different risk profile. This method produced slightly lower annualized returns at 14.81%, but notably reduced the maximum drawdown to -70.02%. While the return differential is narrow, the risk mitigation is tangible. The strategy essentially forces selling high and buying low, albeit less frequently than pure annual rebalancing. This disciplined approach aims to lock in gains from outperformers before they potentially stall and shift capital into underperformers before they recover.This historical context informs recent high-profile moves by Ark Invest. Their early December 2025 sales of $15.8 million in Meta stock and 45,356 Tesla shares represent a concrete application of such rebalancing, likely within their flagship Ark Innovation ETF (ARKK), despite its mixed long-term record of -6.45% over five years versus the S&amp;P 500's 14.86% <a href="https://finance.yahoo.com/news/cathie-wood-sells-15-8-040700221.html">according to reports</a>. Crucially, this recent activity signals a strategic pivot towards AI-focused assets, attempting to capitalize on emerging adoption trends. However, this specific tactical shift towards AI remains untested in the current market environment. While the rebalancing technique itself is proven, its application to this particular sector rotation carries inherent uncertainty, highlighting that disciplined portfolio management is necessary but not a guarantee of future success.<h2>Execution Risks &amp; Market Sensitivity</h2>Annual rebalancing delivered 15.43% annualized returns for Ark's portfolio but carried a 71.13% maximum drawdown <a href="https://www.lazyportfolioetf.com/allocation/ark-tech-portfolio-rebalancing-strategy/">according to analysis</a>. This contrasts with no rebalancing, which achieved a higher 16.61% return yet suffered an even steeper -71.13% drawdown. Quarterly rebalancing (14.83% return) and threshold-based methods (14.81% return) generated slightly lower returns but trimmed drawdowns to -70.02%. While frequent rebalancing may temper volatility, the data suggests it comes at the cost of long-term growth potential. Ark's five-year performance paints a starker picture. Despite a 42% YTD gain, the ARKK ETF's five-year annualized return remains deeply negative at -6.45%-over 20 percentage points below the S&amp;P 500's 14.86% <a href="https://finance.yahoo.com/news/cathie-wood-sells-15-8-040700221.html">according to reports</a>. This persistent underperformance hints that timing sensitivity may outweigh the theoretical benefits of strategic rebalancing in today's volatile market. Recent portfolio moves, like selling $15.8 million in Meta stock and trimming Tesla holdings, reflect tactical shifts but lack proof of tactical efficacy. The ETF's pivot toward AI-focused assets carries unproven risks. While Ark bets on AI's long-term upside, its recent stock sales and sector reallocations have yet to demonstrate outsized returns. If AI momentum stalls or faces regulatory headwinds, the portfolio's aggressive rebalancing could amplify losses. Investors should weigh the tradeoff: disciplined rebalancing may reduce drawdowns, but ARKK's track record suggests such strategies alone haven't shielded it from sustained underperformance.<h2>Catalysts Ahead</h2>That past underperformance looms large. While Cathie Wood's Ark Invest executed notable rebalancing in early December, selling $15.8 million of Meta shares and over 45,000 Tesla units, the Ark Innovation ETF (ARKK) still carries a five-year annualized return deficit of -6.45% against the S&amp;P 500's 14.86%. This historical gap fuels skepticism about whether recent gains represent a genuine strategic inflection or short-term market favor. Upcoming events will test the resilience of Wood's AI-centric pivot. January's scheduled AI product launches from major portfolio holdings will be scrutinized closely. If these releases drive measurable revenue growth or market share gains, they could validate ARKK's heavy weighting in disruptive technologies. However, delayed launches or tepid uptake would reinforce concerns about execution risks and valuation stretch in the sector. Simultaneously, the Federal Reserve's March policy decision remains a critical wildcard. <img src="https://cdn.ainvest.com/aigc/hxcmp/images/compress-qwen_generated_1765778511762.jpg.png" style="max-width:100%;"/> Persistent inflation could force rate hikes, pressuring high-growth tech stocks that dominate ARKK's holdings and potentially widening the performance gap with traditional indices. Performance divergence through Q1 2026 will be the key barometer. A sustained outperformance streak against the S&amp;P 500 during this period could signal validation of ARKK's reallocated capital strategy. Conversely, if ARKK lags following the AI and Fed catalysts, it may confirm the narrative that the ETF's strength remains cyclical rather than structural. The path forward hinges not just on market sentiment, but on whether portfolio companies convert strategic bets into concrete financial results under evolving macroeconomic pressures. <visualization dataurl="https://cdn.ainvest.com/news/visual/visual_components/viz_xj27q9vu.json"></visualization>

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Cathie Wood's Megacap Tech Moves: Strategic Portfolio Shift or Tactical Market Timing?

The Bank of Japan's (BOJ) decision to unwind its massive ETF holdings-a portfolio valued at ¥83.2 trillion ($532 billion) as of September 2025-marks a pivotal moment in Japan's monetary policy normalization. This gradual sell-off, planned at an annual pace of ¥625 billion in market value, is expected to span over a century, reflecting the central bank's cautious approach to balancing financial stability with institutional credibility <a href="https://www.northerntrust.com/united-states/insights-research/2025/weekly-economic-commentary/the-bank-of-japan-prunes-its-portfolio">according to a report</a>. While the move has been hailed as a step toward reducing market distortions, it raises critical questions about its long-term implications for Japanese equity markets, corporate governance, and regulatory frameworks. <h3>Market Dynamics: Stability vs. Structural Risks</h3>The BOJ's ETF portfolio, representing approximately 7% of Japan's stock market capitalization, has long served as a cornerstone of liquidity and price support. By selling these assets at a measured pace, the central bank aims to avoid destabilizing the market, particularly as <a href="https://investinglive.com/stock-market-update/boj-outlines-century-long-etf-unwind-markets-confident-japans-stock-rally-can-endure-20250922/">the Nikkei 225 and Topix indices have surged</a> to record highs in 2025. However, the sell-off's prolonged timeline-described as a "century-long unwinding" by analysts-suggests that the BOJ will remain a dominant institutional player for decades, <a href="https://www.cepweb.org/the-bank-of-japan-must-define-a-strategy-for-its-etf-holdings-not-just-its-sales/">potentially perpetuating governance challenges</a>. <img src="https://cdn.ainvest.com/aigc/hxcmp/images/compress-qwen_generated_1765777964404.jpg.png" style="max-width:100%;"/> Market reactions to the announcement have been mixed. While the Nikkei 225 initially dipped by 1.8% following the announcement, it quickly stabilized, <a href="https://www.equiti.com/jo-en/news/breaking-data/boj-holds-rates-but-signals-policy-shift-with-etf-sales-and-hawkish-dissent/">buoyed by investor confidence</a> in Japan's equity rally. This resilience underscores the market's adaptation to reduced central bank intervention, yet underlying vulnerabilities persist. <a href="https://www.reuters.com/world/asia-pacific/scramble-sell-japan-sounds-fiscal-warning-bells-2025-11-20/">Rising bond yields and a weakening yen</a>-driven by aggressive fiscal stimulus and reduced BOJ bond-buying-have heightened concerns about systemic risks. The central bank's dual role as both a monetary authority and a major shareholder complicates its ability to act as a neutral arbiter in market dynamics. <h3>Governance Risks: Stewardship Gaps and State Capitalism</h3>The BOJ's prolonged ownership of ETFs has sparked debates about corporate governance and institutional credibility. As one of Japan's largest shareholders, the central bank's abstention from exercising voting rights on underlying corporate shares effectively delegates decision-making authority to ETF managers <a href="https://www.cepweb.org/the-bank-of-japan-must-define-a-strategy-for-its-etf-holdings-not-just-its-sales/">according to analysis</a>. This lack of active stewardship risks entrenching governance distortions, as the BOJ's influence indirectly supports the status quo in corporate decision-making. <a href="https://cetex.org/news/the-boj-must-define-a-strategy-for-its-etf-holdings-not-just-its-sales/">Critics argue</a> that this dynamic fosters a form of "state capitalism," where market outcomes are shaped by implicit government preferences rather than organic investor behavior. Governor Kazuo Ueda has acknowledged these concerns, <a href="https://www.bloomberg.com/news/articles/2025-09-21/boj-removes-japan-stocks-overhang-with-slow-sell-down-of-etfs">signaling the need</a> for a clear governance framework to align the BOJ's holdings with international responsible investment standards. Proposals include adopting the Principles for Responsible Investment (PRI) and <a href="https://am.jpmorgan.com/fi/en/asset-management/adv/insights/etf-perspectives/japan-corporate-governance-shareholder-value/">reallocating the ETF portfolio</a> toward indices emphasizing innovation, human capital, and climate resilience. Such a shift could mitigate systemic risks while supporting Japan's long-term economic goals. However, the absence of a concrete timeline for implementing these reforms leaves room for uncertainty. <h3>ESG Implications and Ownership Dynamics</h3>The BOJ's ETF portfolio, heavily weighted toward large-cap firms in price-sensitive indices like the Nikkei 225, has been criticized for favoring short-term liquidity over long-term sustainability. This concentration amplifies exposure to sectors with high carbon footprints and limited innovation incentives, <a href="https://www.bloomberg.com/news/articles/2025-09-19/japan-etfs-why-the-boj-is-unwinding-its-537-billion-stockpile">raising questions</a> about its alignment with Japan's ESG (Environmental, Social, and Governance) agenda. With ¥46 trillion in unrealized gains, the BOJ's holdings also represent a significant fiscal windfall for the government-a revenue stream that could be redirected toward green infrastructure or social welfare programs <a href="https://www.japantimes.co.jp/business/2025/11/27/boj-gains-from-etf-holdings/">according to reports</a>. Reallocating the ETF portfolio toward ESG-aligned indices could address these imbalances. For instance, shifting toward market-capitalization-weighted indices that prioritize climate resilience and human capital development would not only reduce systemic risk but also reinforce Japan's corporate governance reforms <a href="https://cetex.org/news/the-boj-must-define-a-strategy-for-its-etf-holdings-not-just-its-sales/">according to analysis</a>. However, such a transition requires careful calibration to avoid market shocks, particularly as the BOJ's gradual sell-off continues. <h3>Conclusion: A Delicate Balancing Act</h3>The BOJ's ETF sell-off represents a strategic shift toward policy normalization, but its success hinges on navigating complex trade-offs. While the slow unwinding minimizes immediate market disruptions, it also prolongs the central bank's role as a quasi-ownership stakeholder, complicating its governance responsibilities. For Japanese equity markets to thrive in the post-BOJ era, institutional frameworks must evolve to address stewardship gaps, align with ESG priorities, and foster a more dynamic corporate landscape. As the BOJ charts this path, investors and regulators alike will need to monitor how its actions shape Japan's financial ecosystem. The central bank's ability to reconcile its dual mandates-monetary stability and market neutrality-will ultimately determine whether this century-long unwinding becomes a catalyst for sustainable growth or a lingering source of institutional risk.

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The BOJ's ETF Sell-Off: A Strategic Shift with Long-Term Market Implications

Ethereum's fourth quarter of 2025 has been a theater of contrasts. On one hand, macroeconomic headwinds and ETF outflows have cast a shadow over the network. On the other, aggressive whale accumulation and institutional buying hint at a deeper narrative of resilience. To parse whether these signals point to bearish capitulation or a bullish setup, we must dissect on-chain sentiment and macro investment positioning through the lens of recent data. <h3>Whale Accumulation: A Defense Mechanism or a Bullish Bet?</h3>Whales-wallets holding 10,000 to 100,000 ETH-have been net accumulators in Q4 2025, <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-whale-accumulation-and-etf-inflows-strengthen-bullish-case-can-eth-price-break-toward-3600-4700">adding over 800,000 ETH</a> between mid-October and early December. This surge coincides with Ethereum's price <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-whale-accumulation-and-etf-inflows-strengthen-bullish-case-can-eth-price-break-toward-3600-4700">stabilizing near $3,000</a>, a level that suggests defensive buying rather than speculative frenzy. <img src="https://cdn.ainvest.com/aigc/hxcmp/images/compress-qwen_generated_1765778240767.jpg.png" style="max-width:100%;"/> One whale, in particular, has drawn attention for <a href="https://www.bitget.com/news/detail/12560605103952">accumulating 934,240 ETH</a> ($3.15 billion) in just three weeks, a move that starkly contrasts with retail investors' net outflows of 1,041 ETH in the same period. This dynamic reflects a broader trend: institutional and ultra-wealthy actors are positioning for a long-term rebound, while retail participants are cashing in amid short-term volatility. The question is whether this accumulation is a sign of confidence in Ethereum's fundamentals or a hedge against macroeconomic uncertainty. <h3>ETF Inflows and Institutional Behavior: Mixed Signals</h3>Ethereum ETFs have delivered a rollercoaster ride in Q4 2025. November saw outflows of $1.42 billion, <a href="https://www.mexc.co/en-NG/news/207091">triple the March 2025 outflows</a>, yet the market <a href="https://www.mexc.co/en-NG/news/207091">absorbed this with less than a 1% daily price drop</a> amid a 10% weekly gain. This resilience hints at improving market depth. More recently, however, late November brought $368 million in inflows over five days, a potential short-term recovery signal. Institutional participation remains a wildcard. <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-whale-accumulation-and-etf-inflows-strengthen-bullish-case-can-eth-price-break-toward-3600-4700">BlackRock's Ethereum ETF alone added $56.5 million</a> in a single session, while BitMine Immersion increased its holdings to 3.86 million ETH. These moves suggest that, despite macroeconomic noise, institutional investors see value in Ethereum's ecosystem-particularly as it prepares for the Dencun upgrade in early 2026. <h3>Technical Indicators and On-Chain Sentiment: A Fragile Balance</h3>Ethereum's price has <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-eth-price-confirms-bullish-pennant-breakout-as-whales-add-over-800000-coins">broken out of a bullish pennant</a> on the 4-hour chart, <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-eth-price-confirms-bullish-pennant-breakout-as-whales-add-over-800000-coins">targeting $3,700</a>. This breakout aligns with a broader trading range of $2,800 to $4,200, a structure that implies volatility but not necessarily a bearish trend. Exchange reserves have also <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-eth-price-confirms-bullish-pennant-breakout-as-whales-add-over-800000-coins">fallen to 8.6% of total supply</a>, a historically low level that reduces immediate sell-side liquidity and strengthens price resilience as ETH locks into staking and L2 protocols. On-chain sentiment is mixed. Ethereum trades near critical support at $3,100, <a href="https://bravenewcoin.com/insights/ethereum-price-prediction-eth-stabilizes-above-3100-as-hs-pattern-and-fvg-zone-shape-market-outlook">where whale accumulation and a head-and-shoulders pattern suggest a potential rebound</a>. A Fair Value Gap (FVG) in the $2,600–$2,800 range adds another layer of historical support. Meanwhile, technical indicators like RSI and stochastics hint at short-term bullish momentum if the price holds above $3,100. <h3>Macroeconomic Headwinds: The Fed's Shadow</h3>The Federal Reserve's hawkish pivot has been a drag on risk assets. <a href="https://www.investing.com/analysis/ethereum-faces-macro-headwinds-as-liquidity-tightens-and-leverage-resets-200670622">With Treasury yields climbing to 4.08%</a> and the U.S. Dollar Index (DXY) near multi-week highs, Ethereum's appeal as a hedge has dimmed. Institutional investors are rotating into Treasuries, while Ethereum's price has <a href="https://www.investing.com/analysis/ethereum-faces-macro-headwinds-as-liquidity-tightens-and-leverage-resets-200670622">fallen to $3,080</a>, reflecting broader risk-off sentiment. Yet Ethereum's performance isn't entirely disconnected from macro trends. The Q3 2025 rate cut <a href="https://www.coindesk.com/markets/2025/10/08/q4-crypto-surge-historical-trends-fed-shift-and-etf-demand-align">spurred $18 billion in ETF inflows</a>, and historical patterns show Ethereum often outperforms Bitcoin in post-deleveraging phases. This suggests that while the Fed's stance is bearish in the near term, Ethereum's long-term fundamentals-bolstered by the Dencun upgrade and RWA tokenization-could drive a rebound once liquidity conditions normalize. <h3>The Outlook: Bearish Pressure or Bullish Setup?</h3>The confluence of whale accumulation, ETF inflows, and technical resilience paints a nuanced picture. On one hand, macroeconomic headwinds and ETF outflows create near-term bearish pressure. On the other, institutional buying, low exchange reserves, and a strong support structure at $3,100 suggest a potential rebound. The key variables to watch: 1. DXY levels: A break above 101 could reignite dollar strength and suppress Ethereum demand. 2. ETF flows: Sustained inflows would signal renewed institutional confidence. 3. Dencun upgrade: Scalability improvements could catalyze DeFi and enterprise adoption. For now, Ethereum sits at a crossroads. The bearish case hinges on prolonged macroeconomic stress and ETF outflows. The bullish case requires a stabilization in risk sentiment, a hold above $3,100, and a successful institutional narrative around Ethereum's role in programmable finance.

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Ethereum Whale Activity and Exchange Inflows: A Confluence of Bearish Pressure or a Prelude to a Bullish Rebound?

U.S. stocks closed sharply lower Friday as selling pressure intensified in technology shares, with renewed concerns over artificial-intelligence spending prompting investors to rotate out of the market’s most crowded trades.
The Nasdaq Composite fell 398.69 points, or 1.69%, to 23,195.20, leading losses among major benchmarks. The S&amp;P 500 declined 73.59 points, or 1.07%, to 6,827.41, while the Dow Jones Industrial Average dropped 245.96 points, or 0.51%, to 48,458.10. Small-cap stocks also retreated, with the Russell 2000 sliding 1.51% to 253.90.
<video src="https://www.youtube.com/embed/CXagMxDjvPg" poster="https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/The Truth About Cannabis Banking_92174ac31765573355167.jpg" data="{&quot;videoUrl&quot;:&quot;https://www.youtube.com/embed/CXagMxDjvPg&quot;,&quot;coverUrl&quot;:&quot;https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/The Truth About Cannabis Banking_92174ac31765573355167.jpg&quot;}"></video>The pullback followed a sharp reversal in several artificial-intelligence bellwethers after Broadcom Inc. issued a weaker-than-expected outlook, unsettling a market that has relied heavily on AI-related earnings growth throughout the year. <a href="https://www.bloomberg.com/news/articles/2025-12-11/stock-market-today-dow-s-p-live-updates?srnd=homepage-americas" target='__blank'>According to Bloomberg,</a> Broadcom shares fell roughly 12%, weighing on semiconductor peers and companies tied to data-center infrastructure and power demand.Bloomberg also reported that Oracle Corp. shares extended losses amid concerns that rising capital expenditures and a longer runway to revenue realization could dampen near-term returns from AI investments. The report cited delays affecting some of Oracle’s data-center projects, compounding investor anxiety over the pace of AI monetization.<visualization data='{&quot;components&quot;:[{&quot;show_type&quot;:&quot;jgyKline3&quot;,&quot;config&quot;:{&quot;codeName&quot;:&quot;name&quot;,&quot;marketTag&quot;:&quot;NYSE&quot;,&quot;variety&quot;:&quot;Stock&quot;,&quot;showBottom&quot;:true,&quot;moduleList&quot;:[&quot;MACD&quot;],&quot;maLine&quot;:[5,10,20,60]},&quot;title_config&quot;:{&quot;config&quot;:{&quot;display&quot;:true},&quot;data&quot;:{&quot;h1&quot;:&quot;Oracle Corp (ORCL) Stock Price&quot;}},&quot;data&quot;:{&quot;datas&quot;:[{&quot;code&quot;:&quot;ORCL&quot;,&quot;name&quot;:&quot;Oracle Corp&quot;,&quot;market_code&quot;:&quot;169&quot;}]},&quot;uuid&quot;:&quot;ae507dd758ce29c9&quot;}],&quot;page&quot;:{&quot;layout&quot;:{&quot;layout_data&quot;:&quot;[{\&quot;showType\&quot;:\&quot;jgyKline3\&quot;,\&quot;uuid\&quot;:\&quot;ae507dd758ce29c9\&quot;}]&quot;},&quot;render_for&quot;:&quot;aigc&quot;,&quot;tracking_info&quot;:{}}}' dataurl='undefined'></visualization>The decline marked a sharp turn after recent record highs for major indexes. The S&amp;P 500 had notched a fresh closing peak in the prior session, leaving the market vulnerable to profit-taking as year-end approaches. By Friday’s close, market internals underscored the breadth of the retreat, with declining stocks outpacing advancers by roughly two-to-one.Technical indicators also softened. Just over 52% of stocks remained above their 50-day moving averages, while about 45% sat below their 200-day averages, suggesting momentum has begun to erode beneath the surface even as headline indexes remain elevated.The session reinforced growing unease that the AI trade, one of the dominant drivers of 2025 market performance, may be entering a more volatile phase. While long-term enthusiasm for artificial intelligence remains strong, investors appear increasingly sensitive to earnings visibility, spending discipline, and execution risk among the sector’s largest beneficiaries.Read <a href="https://www.ainvest.com/news/step-step-guide-ai-bubble-2512-22/" target='__blank'>A step-by-step guide to the AI bubble</a> <img data-json="{&quot;type&quot;:&quot;image&quot;,&quot;src&quot;:&quot;https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Rick AI bubble_03014e041765573759619.jpeg&quot;,&quot;alt&quot;:&quot;&quot;,&quot;children&quot;:[{&quot;text&quot;:&quot;&quot;}]}" src="https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Rick AI bubble_03014e041765573759619.jpeg" contentEditable="false" style="display: block; margin: 0 auto; maxWidth: 100%" />

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Tech Rout Deepens as AI Leaders Slide, Pulling U.S. Stocks Lower

<h3 style="text-align: start">Is it bursting? Here&#39;s how to tell, and what to do about it</h3>Tech stocks have swooned in recent weeks. A reprieve seemed nigh on November 19, when chip giant Nvidia <a href="https://www.nytimes.com/2025/11/19/technology/nvidia-earnings.html" target='__blank'>reported blowout earnings</a>, demonstrating once again that there’s real revenue and profit in the artificial intelligence revolution.But Nvidia isn’t the whole story, and a low-speed tech selloff <a href="https://www.cnbc.com/2025/11/20/nvidia-shares-rise-after-after-stronger-than-expected-3q-results.html" target='__blank'>still seems to be underway</a>. Some seasoned investors are sounding the alarm on AI because they see warning signs that remind them of other bursting bubbles. One is irrational exuberance over a disruptive technology that might be getting ahead of itself. Another is the role of private lending to finance much of the spending, which is more opaque and possibly riskier than traditional financing.The upshot could be a market downturn similar to the dot-com bust that began in 2000 and lasted three years. Investors overexposed to AI or to tech in general could endure sharp losses they never saw coming.Here’s the lay of the land:

¶ Hundreds of firms across the economy are spending more than $100 billion per year on artificial intelligence systems, including power-hungry data centers, computing hardware and cloud infrastructure. This spending surge has almost single-handedly driven the stock-market boom of the last three years.<img data-json="{&quot;type&quot;:&quot;image&quot;,&quot;src&quot;:&quot;https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Rick AI bubble_3bfbec0b1765552840710.jpeg&quot;,&quot;alt&quot;:&quot;&quot;,&quot;children&quot;:[{&quot;text&quot;:&quot;&quot;}]}" src="https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Rick AI bubble_3bfbec0b1765552840710.jpeg" contentEditable="false" style="display: block; margin: 0 auto; maxWidth: 100%" />¶ Much of the borrowing that finances this buildout comes from private sources other than banks, such as private-equity firms, hedge funds and specialty finance companies. Some <a href="https://www.bloomberg.com/news/articles/2025-11-10/blackrock-eyes-100-loss-on-private-loan-amid-debate-over-marks" target='__blank'>familiar Wall Street firms</a> now have private credit arms, as well. This private credit is less regulated and less transparent than more traditional financing through banks. Some analysts see parallels to the reckless lending that inflated the subprime mortgage market in the early 2000s, and left many investors with PTSD that’s flaring now.¶ It would be normal for many of the AI bets these companies are placing to fail. Breakthrough technologies often generate speculative manias in which a small number of players become stratospheric successes while many go bust.¶ There’s sharp disagreement over whether AI will transform life as we know it or just amount to a glorified Google search. The market narrative, so far, has tilted toward transformation. But some prominent voices are now calling AI vastly overhyped.¶ Stocks and tech stocks in particular are at extremely high valuations. A correction would be normal, but a selloff could deepen if it exposes a lot of undercapitalized firms that can’t survive routine market stress. Some bigwigs think we’re already starting to see that.More from Rick Newman <a href="https://www.thepinpointpress.com/ " target='__blank'>The Pinpoint Press</a> <ul><li><a href="https://www.thepinpointpress.com/p/the-trump-economy-is-subpar" target='__blank'>The Trump economy is supbar</a></li></ul><ul><li><a href="https://www.thepinpointpress.com/p/the-trump-economy-is-subpar" target='__blank'></a><a href="https://www.thepinpointpress.com/p/why-low-gas-prices-arent-cheering" target='__blank'>Why low gas prices aren&#39;t cheering anybody up</a></li></ul><ul><li><a href="https://www.thepinpointpress.com/p/why-low-gas-prices-arent-cheering" target='__blank'></a><a href="https://www.thepinpointpress.com/p/the-other-affordability-problem-incomes" target='__blank'>The other affordability problem: Incomes are flatlining</a></li></ul><h2 style="text-align: start">Here are the possible elements of a bursting AI bubble:</h2>1. A souring AI narrative. The AI hype suggests bots and machines will soon be able to reason like humans and do much of the work people can do. But there are skeptics. Banking analyst Chris Whalen calls AI a “global marketing con.” He <a href="https://www.theinstitutionalriskanalyst.com/post/theira780" target='__blank'>wrote recently that</a> “most public companies are so invested in the false gospel of AI that they dare not even hint at the truth, namely that the vast majority of AI projects will never be profitable or even relevant.” AI giants such as <a href="https://rollcall.com/factbase/trump/transcript/donald-trump-remarks-thanksgiving-turkey-pardon-november-25-2025/" target='__blank'>OpenAI</a> and <a href="https://www.cnbc.com/2025/11/18/anthropic-ai-azure-microsoft-nvidia.html" target='__blank'>Anthropic</a>, for instance, are spending billions even though profits are years in the future.Yann LeCun, an AI progenitor who has been chief AI scientist at Meta, has been drawing converts to his <a href="https://www.wsj.com/tech/ai/yann-lecun-ai-meta-0058b13c?st=9iof7m&amp;mod=wsjreddit" target='__blank'>unconventional view</a> that the standard approach to training AI is a <a href="https://www.youtube.com/watch?v=qvNCVYkHKfg" target='__blank'>dead-end that will never yield anything near human-level intelligence</a>. LeCun recently said he’s leaving Meta to start a firm developing a different type of AI.2. Stretched valuations. Current stock values are extremely high, relative to earnings. Economist David Rosenberg of Rosenberg Research points out that by one measure, S&amp;P 500 valuations are higher than during any bubble of the last century except for the peak of the dot-com boom in 1999. “We are in the stratosphere,” he says.By Rosenberg’s estimation, stock prices hit bubble levels in June 2024. The typical bubble lasts 16 months before it bursts. Last month would have marked the 16-month point. For what it’s worth, the tech-laden NASDAQ index hit its last record high on October 29. It’s down nearly 8% since then. 🤔3. Dodgy financing. There’s been about <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-state-of-ai-competition-in-advanced-economies-accessible-20251006.htm#fig1" target='__blank'>$500 billion in AI investment in the United States</a> during the last 10 years. The pace of investment now is about $110 billion per year. Much of that is borrowed money, and much of that comes from private sources that face little regulation and don’t have to disclose their obligations the way banks do. Private lending is still a small portion of all lending, but it probably accounts for a much bigger chunk of riskier gambits on AI.There’s nothing inherently wrong with private credit. But insiders say this is where the froth is forming, with private lenders seeking outsized returns by gambling on AI ventures that may never be profitable. Billionaire Jeff Gundlach, CEO of DoubleLine Capital, <a href="https://finance.yahoo.com/news/bond-king-jeffrey-gundlach-warns-201825636.html" target='__blank'>said recently that</a> “in recent years, garbage lending has gone to these private markets.” Public markets, by contrast, have much better lending standards than they did during the subprime mortgage explosion, which led to the financial crash of 2008.4. Cockroaches. Most people haven’t noticed, but a few firms have gone bust recently in surprisingly dramatic fashion, including <a href="https://www.kbb.com/car-news/a-big-auto-lender-went-bankrupt-heres-what-it-means/" target='__blank'>subprime auto lender Tricolor Holdings</a>, <a href="https://www.theguardian.com/business/2025/oct/18/what-is-private-credit-us-first-brands-tricolor-banks" target='__blank'>auto-parts company Frist Brands</a> and <a href="https://www.bloomberg.com/news/articles/2025-11-10/blackrock-eyes-100-loss-on-private-loan-amid-debate-over-marks" target='__blank'>Renovo Home Partners</a>. Those firms relied on private credit for their financing, and they essentially collapsed with almost no warning. That suggests terrible oversight by their lenders, and possibly fraud.“My antenna goes up when things like that happen,” JPMorgan Chase CEO Jamie Dimon <a href="https://www.cnn.com/2025/10/16/business/jamie-dimon-us-economy-cockroaches" target='__blank'>said in October</a>. “When you see one cockroach, there are probably more.” These failures were not AI companies, but many analysts point out that small failures in the early days of the subprime collapse in 2006 heralded much worse things to come.5. Dot-com scale. What’s happening in AI right now is not on the scale of the subprime wipeout that led to the 2008 financial crash. That crisis metastasized throughout the banking system and <a href="https://bettermarkets.org/wp-content/uploads/2021/07/Better-Markets-Cost-of-the-Crisis_1.pdf" target='__blank'>cost Americans as much as $20 trillion in lost wealth</a>, along with 9 million jobs. We’re not heading for another full-blown financial crisis.An AI bust could resemble the dot-com bust, however, which is hardly reassuring. That extended selloff <a href="https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/dotcom-bubble/" target='__blank'>caused around $5 trillion in investor losses</a>, which would be about $9 trillion today—roughly two Nvidias. Of course, the dot-com boom that preceded the bust did bring us Amazon, Google, Nvidia itself and many other titans of today’s digital economy. So you could argue that investor losses from 2000 to 2002 turned into gains for those who held on. Huge gains, for those who held long enough.6. The AI defenders. Some important players think there’s no AI bubble to burst. Red-hot Nvidia is the biggest beneficiary of AI spending, and unlike many of those dot-com darlings of 25 years ago, it has gargantuan profits. Net income for the current year is likely to hit $114 billion, according to Capital IQ, with an eye-popping profit margin of 54%. “There’s been a lot of talk about an AI bubble,” CEO Jensen Huang <a href="https://www.cnbc.com/2025/11/19/nvidias-huang-rejects-ai-bubble-we-see-something-very-different.html" target='__blank'>said after the company reported quarterly earnings on November 19</a>. “From our vantage point we see something very different.”7. What should ordinary investors do? Certainly not panic. Gundlach says investors should lower their stock allocation to 40% of their portfolio, and most of that should be outside the United States. But that’s not realistic for many ordinary investors, who have to book capital gains and pay taxes if they sell assets to move money around. For anybody worried about a bubble, it’s more realistic to allocate new investments to safer assets. Investors should also be sure they know the risk of any newfangled products—such as private-credit vehicles—they may have heard about in financial media or from a broker.Perspective matters, too. David Kotok, cofounder of Cumberland Advisors, suggests we’re in the “middle phase” of a cycle very similar to other transformative technologies. “The sequence in all of history is the same,” he says. “In the early phase, there’s rapid acceleration. The middle phase includes leverage. Too much leverage and that’s where we will see the pain.”Eventually, he says, “we will have applications that will be extraordinary, and worthy of investment.” Right now, we just aren’t sure which ones, or how long it will take. <a href=" https://www.thepinpointpress.com/ " target='__blank'>Subscribe to The Pinpoint Press</a> Contributor Biography:<img data-json="{&quot;type&quot;:&quot;image&quot;,&quot;src&quot;:&quot;https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Contributor_61c9c51a1765553428920.jpg&quot;,&quot;alt&quot;:&quot;&quot;,&quot;children&quot;:[{&quot;text&quot;:&quot;&quot;}]}" src="https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Contributor_61c9c51a1765553428920.jpg" contentEditable="false" style="display: block; margin: 0 auto; maxWidth: 100%" /><img data-json="{&quot;type&quot;:&quot;image&quot;,&quot;src&quot;:&quot;https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Contributor Disclaimer_9cc32ad41765553606265.jpg&quot;,&quot;alt&quot;:&quot;&quot;,&quot;children&quot;:[{&quot;text&quot;:&quot;&quot;}]}" src="https://cdn.ainvest.com/articles/focusnews/coverimage/content/pictures/Contributor Disclaimer_9cc32ad41765553606265.jpg" contentEditable="false" style="display: block; margin: 0 auto; maxWidth: 100%" />

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