AI’s uptrend could set the stock market for a ‘mother of all meltdowns’, says Yardeni Research

Ed Yardeni

Ed Yardini.Brendan McDermid/Reuters

  • A massive meltdown could happen as investors pile into AI-related stocks, Ed Yardeni wrote.

  • Such “mothers of all meltdowns” tend to occur at the end of a bull market, he said.

  • “We of course hope that this bull market does not come too far ahead of schedule.”

Yardeni Research President Ed Yardeni said investor optimism about artificial intelligence stocks could fuel another “mother of all mergers.”

Yardeni Research coined the term in 2013, when it predicted a massive market rally fueled by central bank liquidity. This so-called MAMU ended when the pandemic hit in February 2020.

A new MAMU began soon after in March 2020, as the Federal Reserve unleashed a new round of monetary stimulus. But that ended in January 2022, when “investors began to conclude that nothing is forever in the stock market,” Yardeni wrote in a blog post on Sunday.

“Now that the last fiscal cliff has been averted, is another MAMU afoot, led by stocks that are AI frenzy games? Maybe,” he said.

Indeed, the S&P 500 jumped 19.7% after hitting a low in October, while the Nasdaq 100 is up 29.6% after hitting a low in December, he added.

This rally was led by eight mega-cap stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Nvidia and Tesla – which climbed 58.1% from a low in January.

To varying degrees, most of these companies are focused on AI, whether creating the computer chips to develop the technology or implementing AI into their existing services.

And after hitting a combined market capitalization of $10.7 trillion through Friday’s close, those eight stocks alone represent a record 26.6% of the S&P 500, Yardeni noted.

“Since the start of this year, we’ve been targeting 4,600 on the S&P 500 by the end of this year,” he said. “It was and still is a contrary call. We really hope this bull market doesn’t come too far ahead of schedule. Past MAMUs have always happened at the end of bull markets, not at the beginning.”

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