Is the AI Bull Market Over? Nomura Unveils '4 Major Scenarios': Tech Stocks Unmoved, Market Reassessing AI Boom

The tech industry has recently seen an intriguing contradiction. Financial reports are impressive, and capital expenditure plans continue to increase, but stock prices remain sluggish. This discrepancy has left many investors puzzled and has shifted the discussion about 'when the AI boom will peak' from a single scenario to several competing ones.

In a report released last Friday (17th), Nomura Securities strategist Naka Matsuzawa noted that it is now very difficult to have a clear answer to whether AI investment is worthwhile. The market is shrouded in an atmosphere of doubt and observation.

This divergence can also be felt from the market. Semiconductor stocks have fallen significantly, the seven US giants are largely stagnant, and software stocks have quietly formed an independent trend. Funds seem to have started reshuffling within the tech sector.

The next two weeks are the time when US cloud giants will concentrate on releasing their financial reports, and capital expenditure plans will also be revealed.

Matsuzawa reminds us that even if these companies submit beautiful report cards, given the complexity of the current situation, it is actually difficult to say whether the market will accept them.

In addition, the bond market has not yet shown any 'betting on rate cuts' action, which means that if the AI boom is really cooling down, this matter has not yet been reflected in the bond market.

Originally, the market's assessment of whether the AI investment cycle would turn around was roughly focused on three possibilities:

First, cloud giants spend too much money on AI, cash flow is tight, and they are eventually forced to retreat;

Second, memory is too expensive, dragging down investment costs, forcing companies to reduce AI spending;

Third, rising raw material prices push up inflation, prompting central banks to become more hawkish.

But now, the Nomura report points out that the market is now on the lookout for a fourth possibility, that is, memory prices rise too sharply, which in turn stimulates the semiconductor industry to expand production madly, resulting in overcapacity, and memory prices collapse on their own.

In other words, whether AI can create net benefits for the overall economy, this account is now unclear. Semiconductor stocks previously surged on rising memory prices, but this trend seems to have reached a turning point.

The existence of four scenarios at the same time makes the question of 'whether AI is worthwhile' even harder to conclude. Matsuzawa believes that it is this 'not knowing which one it will be' ambiguity that makes market participants choose to stand still.

The core contradiction in the current market is that the financial reports of technology companies are not problematic, and investment plans are not shrinking, but stock prices are not rising. This phenomenon of 'fundamentals and stock prices decoupling' has been particularly prominent recently.

There is also a split within the sector. Semiconductors and the seven giants are relatively weak, while software stocks are relatively resilient. Looking at the entire US stock market, defensive-type stocks and consumer stocks are holding up, while technology, capital goods, and bank stocks are generally under pressure.

The VIX panic index has risen to 16.7, but the volatility indicators of the bond market and the foreign exchange market continue to decline, which means that the current tension is mainly concentrated in the stock market.

Matsuzawa believes that even if the cloud giants submit good-looking financial reports and capital expenditure figures in the next two weeks, under so many scenarios intersecting and interfering, it is difficult to generalize how each sub-sector will react, because strong performance does not necessarily mean a comprehensive rise.

Analysts believe that there is a phenomenon worth noting. If the market really believes that the AI boom is over, theoretically, bonds should see buying pressure, because investors will try to position themselves in advance for future rate cuts. But this situation has not yet occurred.

The Nomura report points out that the US Treasury yield curve is showing 'bearish flattening', with the 10-year real yield rebounding to 2.31%, and the 10-year breakeven inflation rate continuing to fall to 2.23%.

The market is instead seeing rising rate hike expectations. The probability of the Fed raising rates by 3 basis points in July, 14 basis points cumulatively in September, and 27 basis points cumulatively in December are all being revised upwards, and the 2-year forward OIS rate, as an indicator of the terminal rate, has also rebounded to 3.84%.

In other words, the current pricing logic of the bond market is still 'rate hikes' rather than 'rate cuts'. Matsuzawa believes that the market's pricing of the end of AI prosperity is not yet complete, and investors' doubts are still brewing, not yet forming a clear consensus.