The rise of the ‘Magnificent 7’ stocks since Liberation Day is striking—the CNBC Mag 7 Index, which slid to 250, is now at 405. Between them, the Mag 7 stocks—Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta and Tesla—are worth over $20 trillion, or more than the GDP of China. Nvidia, which dominates the chips market and hence the AI story, is up 32 percent; Microsoft, a major investor in OpenAI, is up 22 percent. It is being argued that the rise in AI stocks is debatable. The question ricocheting off Wall Street is where are the revenues? Critics flag the prevalence of ‘vibe revenues’ in the ecosystem and see parallels with the 1999 dotcom bubble. Interestingly, the biggest gainer in the S&P500 is Robinhood Markets—up over 200 percent to $129 this calendar year.
Like the scepticism about the quality and speed of the rise of stock indices is focused on AI stocks—particularly after the trillion-dollar declarations of consanguineous nature by chip-makers, buyers and infra developers. Indeed, OpenAI chief Sam Altman believes, “AI could be in a bubble.” Bridgewater founder Ray Dalio says the AI bubble echoes dotcom excesses. Torsten Slok of Apollo Global avers that the AI bubble is bigger than the 1990s’ dotcom bubble. Sceptics point out that several metrics such as the Buffet Indicator on US market cap as a ratio of GDP and concentration of market leadership signal trouble ahead.
What is troubling investors is that the indices seem to shrug off every live issue that must impact valuations. Mind you, the promise of ‘liberation’ is yet to be realised and the issue of trade deficits is far from settled. Tariff trackers illustrate the state of negotiations rather eloquently. For instance, the largest deficit is with China and the trade talks there are following a pretend-and-extend or rinse-and-repeat pattern. Last week, Trump threatened to impose additional 100 percent tariffs on China, only to end this week arguing it is not sustainable.
Like the award for the perfect diagnostic analogy for detecting rot must go to Jamie Dimon. The JP Morgan CEO said, “When you see one cockroach, there are probably many more.” Dimon deployed the analogy to highlight risks and frauds in regional banks and private credit markets that have been haunted by ‘mark-to-myth’ valuation questions.
Finally, the contest between hope and fear is best explained in the ‘yaksha prashna’ in the Mahabharata. The reality of mortality is visible on a daily basis, and yet, people seek to live longer, even immortality.
Read all columns by Shankkar Aiyar
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit
Revolution, and Accidental India
(shankkar.aiyar@gmail.com)