WSJ: The burst of the storage chip stock bubble in this round has not triggered systemic shocks, with the S&P 500 only down 1.6% from its historical high

According to The Wall Street Journal, the U.S. market has frequently seen bubbles around specific industries and themes in recent years, but these localized bubbles usually do not drag down the overall stock market when they burst.

The current storage chip bubble rapidly inflated and burst within about 4 months, accompanied by severe volatility and a hedge fund falling into crisis, yet the S&P 500 index is only 1.6% away from its historical high, and the equal-weighted S&P 500 index set a new high last week. The pullback in AI-related stocks has also been almost completely offset by gains in other sectors.

Over the past decade, the U.S. market has experienced bubbles in 3D printing, Chinese concept stocks, low-volatility products, SPACs, clean energy, cannabis, space, crypto assets, and AI concept stocks. Strategy fell 83% from its peak, Trump Media's stock price dropped 89%, and SK Hynix fell 55% before rebounding last Friday.

Loose funding, speculative demand, and expectations for new technologies have driven these bubbles, while margin debt and leveraged ETFs in recent years have further amplified the volatility.

These localized bubbles have not caused severe shocks to the economy, mainly because most were not financed by large amounts of debt. After the bubbles burst, the losses were primarily borne by investors, and the banking system did not suffer significant shocks.

Macro strategist Russell Napier stated that the banking system remains healthy, so there is always more credit available in the market to create the next round of bubbles.

However, AI investments are pushing the market into a more dangerous territory. Data center spending is expected to reach $7 trillion over the next four years, and if the productivity gains from AI are not sufficient to support such a scale of investment, capital misallocation could severely harm the economy.

As AI construction increasingly relies on debt financing, if broader AI investments ultimately prove to be a bubble, their burst could impact the financial system, making it difficult for the overall market to remain unaffected.