US AI Stock Frenzy Surges, Big Short Warns of Dot-Com Bubble Shadows, When Will the Market Revelry End?

TradingKey - On Friday, the S&P 500 once again hit a new record high, while the Philadelphia Semiconductor Index surged 11% within five trading days, marking a six-week winning streak for U.S. stocks.

Amid the market frenzy, "Big Short" Michael Burry issued another warning, comparing the current market's pursuit of AI to the final stages of the 2000 dot-com bubble.

In an article published Friday, Burry mentioned that while listening to financial radio during a long drive, he found the content entirely consumed by AI topics, with no other discussions to be heard.

Burry stated bluntly in the piece that current stock market trends are severely disconnected from economic fundamentals. He cited as an example that the S&P 500 reached an all-time high on Friday, triggered by an April jobs report that slightly exceeded expectations—while consumer confidence simultaneously plunged to historic lows.

"Stock price movements have nothing to do with employment or consumer confidence," Burry wrote. "They rise on their own, simply because they have been rising. Relying on a two-letter concept that everyone thinks they understand... this feels like the final months of the 1999-2000 bubble."

He specifically noted the rally in the Philadelphia Semiconductor Index—which has gained 65% so far this year—stating its trajectory is strikingly similar to the run-up before the tech crash in 2000. The "two-letter concept" he mentioned is the currently red-hot "AI."

Hidden risks of a correction

This week, signals of de-escalation in the Iran situation, U.S. April non-farm payrolls significantly exceeding expectations, and a strong rally in the AI chip sector combined to push already-hot momentum trading to new heights.

The core logic of momentum trading is straightforward: buy the outperformers and sell the underperformers.

This strategy covered nearly all asset classes this week, as junk bonds, cryptocurrencies, and semiconductor stocks were all integrated into the same risk-appetite-driven trading framework. The chip sector performed particularly well; AMD's Relative Strength Index (RSI) is approaching historical overbought peaks, and the software sector rebounded for the fourth consecutive week, with a weekly gain of over 5%.

Data from the options market shows that traders are flocking to call options with near-record enthusiasm, as the volume of call options on individual stocks relative to puts reached its highest level in four years.

Bullish sentiment among retail investors is also at an all-time high; Barclays' ( BCS) related indicators show that retail optimism is nearly three standard deviations above the long-term mean. This frenzied atmosphere has many analysts recalling market conditions in the late 1990s.

Alexander Altmann, Head of Global Equity Tactical Strategy at Barclays, noted that the phenomenon of investors crowding into winning stocks has historically preceded momentum factor collapses, with similar scenarios seen during the 2008 financial crisis and the 2020 COVID-19 vaccine rollout.

Meanwhile, Goldman Sachs' ( GS) proprietary data shows that valuations for high-momentum stocks are elevated and institutional positioning is at multi-year highs. Furthermore, an executive at UBS Securities noted that AI-winning stocks have surged more than 50% from their March lows, suggesting that the short-term momentum factor is highly fragile and advising investors to consider holding short-term downside protection to hedge risk.

Massive AI Investments Squeeze Tech Giants' Buyback Capacity

In contrast to the market frenzy, tech giants are quietly adjusting their capital structures; the cash-burning pressure from the AI arms race is altering their shareholder return strategies.

Goldman Sachs' report shows that S&P 500 companies are shifting from share buybacks to capital expenditures, with CapEx expected to grow by 33% in 2026 while share buybacks grow by only 3%—a trend especially evident among the tech giants with the highest AI investment.

Amazon ( AMZN ), Google ( GOOGL ), Meta ( META ), Microsoft ( MSFT and Oracle ( ORCL ), among other companies, capital expenditures in 2026 are expected to reach $755 billion, an 83% year-over-year increase. These companies are investing 100% of their operating cash flow into capital expenditures, leaving almost no surplus funds for buybacks.

Data shows that the current proportion of cash used by these giants for share buybacks is only 15%, significantly lower than the 2017-2022 average of 27%. In 2025, their capital expenditures and R&D spending will account for 34% of the S&P 500 total, but buybacks and dividends will only account for 10%. This shift in capital allocation means that the priority tech giants give to future AI investment has far exceeded short-term shareholder returns.

This shift is also affecting market expectations. As tech giants reduce share buybacks, the previous logic of relying on buybacks to support stock prices is being dismantled. The long-term momentum of the AI rally will depend more on actual profitability following technical implementation rather than short-term boosts from capital operations. If the commercialization process of AI technology falls short of expectations, the pressure of high investment and low returns could trigger a market re-examination of tech giant valuations, potentially acting as a catalyst for a market correction.