Big Tech's drop over the past couple of days has been a bit baffling, so here's my own conspiracy theory—take it for entertainment.
Last quarter the AI narrative was still going strong. Big Tech's cloud businesses were already making real money off AI, and hardware makers' order books are supposedly full through 2030. Sure, capex is scary high, but at least demand across the whole AI supply chain still looks pretty robust.
Then suddenly the weather changed. The market was just praising AI as a once-in-a-century industrial revolution, and the next thing you know it's worried about capex being too high, free cash flow at the big players turning negative, and even having to issue debt to fill the hole. Big Tech gets dumped first and asked questions later, good earnings or bad.
Weren't these problems there all along? How did Wall Street suddenly remember to settle accounts overnight?
Check the calendar: next Tuesday, November 3—the midterms.
Trump has always touted the US stock market as his own achievement, tweeting every few days about how some index he drove to umpteen thousand points. And yet, right before the election, Big Tech takes a collective dive and market sentiment flips on a dime.
And it's not just Big Tech. Intel says its Israel fab was hit and cuts revenue guidance; crypto dives too, and Binance just happens to get hacked five days before the vote. Each of these excuses is about as convincing as Zhangzidao's scallops running away.
Do you believe it's just a coincidence, or do you believe I'm Qin Shi Huang?
Why would Wall Street stick it to Trump?
Trump has really put Wall Street through the wringer these past two years. Last year's tariff war was a mess—no need to rehash it. This year started off great: inflation looked set to come down, everyone was waiting for the Fed to cut rates and loosen liquidity so valuations could keep flying. Then this guy short-circuits, goes and bombs Iran, can't beat them into submission, and can't pull out without losing face. Oil prices spike, inflation picks back up, and rate-cut expectations turn into rate hikes.
Rate cuts and liquidity are Wall Street's lifeblood. After all that, financing costs go up and valuations have to be recalculated—anyone would be cursing. So they use the midterms to teach Trump a lesson, lame-duck him so he can't keep improvising.
2020 played out a similar script: Election Day November 3, Pfizer announces over 90% vaccine efficacy on the 9th, Moderna follows with 94.5% on the 16th, and Pfizer drops final data of 95% on the 18th. Trump was on Twitter at the time, accusing Pfizer and the FDA of deliberately holding back the good news until after the election because they didn't want him getting credit for the pandemic response.
Back to this time—I'm not too worried. I don't think the AI bull market is over.
This looks more like a mid-bull shakeout, washing out retail investors and weak hands along the way. Once the election is over and the narrative pieces are arranged, the economy will look great again, and with the year-end Santa rally, the S&P will go straight to 8,000.
As for when the real AI bubble bursts, I think it's still a bit early.
OpenAI and Anthropic haven't gone public yet. Wall Street has poured so much money into telling this story—they'll at least wait for those two IPOs, one last round of euphoria, and early investors getting their meat before the real dump.
When everyone and their grandma is trading AI and any random company that mentions AI takes off—that's when you should run.
Mark my words—come back at Christmas to dig up this post and see whether I get slapped in the face or the great US bull market never ends.
The Binance hack and Intel's guidance cut—how big their actual impact is, and whether they really have anything to do with the timing of the election, may still need further verification of the sources; otherwise, it's easy to string coincidences together into a story.