From a Reuters article this week: “A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago, raising the question of whether prices have again been inflated by optimism over a revolutionary technology.”
Reuters would never come out and say this, but from where I’m standing there is no question: Optimism (and hype) surrounding a “revolutionary technology” - AI, of course - has created a bubble of monumental proportions. To call prices “inflated” is like calling the Pacific Ocean a puddle at this point.
AI is driving tech sector performance, and tech sector performance - just 10 or 15 stocks - is driving virtually all the gains on the S&P 500 this year.
But there’s another “side” to the AI story - one that doesn’t typically get discussed out there in the media.
Everyone and their mother knows about AI stocks by now, but AI is driving in the markets in a different, and, frankly, troubling way…
The Real AI Revolution Is Happening Behind Our Backs
I’m talking about algorithms. “Algos,” “bots” - whatever you want to call them, they’re the overwhelming force behind the price action we see in any given hour of the trading day.
Some of you old-school types out there might be familiar with the principles of value investing. I’m sure you’ve looked at this market - frothy, toppy, totally divorced from fundamentals - and thought: “What the hell is going on here? How can these keep going up?”
That’s algorithms. They’re buying up 52-week highs and selling off 52-week lows. Very rare these days to see a stock move from weakness to strength because it never really gets the chance. It’s also one of the reasons why I call this “the un-shortable market.” It’s virtually impossible to short these days.
The stocks they pick, which are already headed higher, are essentially hijacked and forced to nosebleed levels via a high-tech blizzard of buy orders.
Broadcom here is a textbook example. The chart tells the tale - like watching CCTV footage of some mob guys nabbing a truck full of Blu-Ray players. 
There’s no other explanation for AVGO’s explosive run here. It’s a second-tier chipmaker and digital infrastructure. The stock is up nearly 7.5% in the past five sessions - no fundamental reason why, no earnings call announcing ambitious growth plans, no impending chip breakthrough. AVGO was swept up in tech FOMO Fever and then the algos took over. Anyone attempting to short this stock would have their nose cut off.
Anyone riding shotgun with the algos, though, would’ve grown their stake by a cool 7.5%. And of course if you were trading this stock, you’d be looking at multiples of that 7.5%.
Look, AVGO is far from alone here. Virtually the entire tech sector, with a little help from AI insanity, is rocketing, and the algos have taken notice. They’ve gobbled up everything here.
Keep your eyes peeled - I’ll be in touch very soon.
Professor Jeff Bierman