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Investing.com -- The latest Sevens Report on Friday warned that a divergence between AI chipmakers and the broader equity market may be signaling early risks of an “AI bubble,” advising investors to monitor the semiconductor sector for signs of a market peak.
“Every bubble in modern market history has been based on a narrative,” Sevens wrote, noting that today’s dominant theme is AI. “That potentially bubble-inflating theme is unquestionably AI technology.”
While some see Nvidia (NASDAQ:NVDA) as the key barometer for AI-driven market sentiment, Sevens argued that relying solely on one stock can be misleading.
“There are a lot of various factors that can impact a single stock, including a ‘cult following’… a dynamic that has appeared to have emerged with NVDA as well.”
Instead, the firm recommends watching the Philadelphia Semiconductor Index (SOX), which includes multiple AI-related chipmakers such as AMD (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM), Broadcom (NASDAQ:AVGO) and Micron (NASDAQ:MU).
They wrote that “it would be much more prudent to keep tabs on the broader-based semiconductor index, SOX.”
That’s because the SOX hasn’t posted a new high since July 2024, even as the S&P 500 is up roughly 13% over the same period.
“If AI remains the primary source of bullish optimism… this market is in trouble and at risk of rolling over sooner than later.”
Using a cartoon analogy, Sevens said the S&P 500 may be mimicking Wile E. Coyote running off a cliff. The firm stated that the broader stock market “could very well be on the brink of facing [gravity] in the near-term.”