AI Rally Sends Warning Signal? Market Divergence Echoes Dot-Com Bubble: JPMorgan Says Next Few Weeks Are Crucial

According to MarketWatch, JPMorgan strategists are warning that the market faces the risk of a 'more concerning wave of de-risking.' AI-related stocks are no longer moving in unison, and this divergent trend is reminiscent of the dot-com bubble era.

Alphabet (GOOGL-US) and Tesla (TSLA-US) kicked off the mega-cap tech earnings season, but market reactions were lackluster. Both companies announced increased AI spending plans, yet investors remain concerned about the return on these massive investments.

Meanwhile, signs of rising AI expenditures have boosted Asian chipmakers such as SK Hynix and Samsung Electronics, reinforcing a key market trend this year: companies investing in AI are being punished by the market, while those receiving AI investment capital are being rewarded.

The Roundhill Magnificent Seven ETF (MAGS-US) has risen only about 1.5% year-to-date, compared to the Philadelphia Semiconductor Index, which has surged over 70%.

JPMorgan strategist Jason Hunter has issued renewed warnings about this dynamic and analyzed the current market environment from a historical perspective.

Hunter told clients on Wednesday, 'If hyperscalers fail to break through key technical resistance zones—and face renewed selling pressure in the near term for any reason—while semiconductor stocks remain below critical resistance levels, what is currently just a rotation within the AI theme could evolve into a more concerning wave of de-risking.'

Hunter explained that a similar situation occurred in the late 1990s during the dot-com bubble, between two distinct categories of technology stocks.

Michael Cembalest, JPMorgan's chairman of market and investment strategy, also discussed this historical parallel in a podcast released by the bank on Wednesday.

Cembalest said, 'There was a period when front-end communication service stocks began to stall, while infrastructure stocks continued to rise. That created a false impression in the market to some extent.'

Currently, hyperscale cloud providers at the forefront of the AI boom are stagnating, with declining free cash flow. In contrast, chipmakers, infrastructure suppliers, and optical communications network stocks continue to climb.

Cembalest noted, 'There are some similarities here, and I think we need to take them seriously. Because you always want the caboose to move slower than the engine, but that’s not what’s happening now.'

In a July 1 report, Hunter illustrated what happened in the late stages of the dot-com bubble. He pointed out that since early July, the Philadelphia Semiconductor Index has corrected about 20%, while the hyperscaler group has 'bounced within its broad trading range extending into 2026.'

On the optimistic side, hyperscalers regaining support within their range 'suggests capital is rotating out of overcrowded hardware names, which could ultimately make the broader AI theme more sustainable over the coming months and quarters.'

However, Hunter said, 'The bearish view would point out that a similar convergence occurred in Q2 2000, which ultimately marked the peak of that market cycle.'

He added, 'From a technical standpoint, both arguments have merit, so we believe price action over the next few weeks will be critical.'

Hunter warned that the Philadelphia Semiconductor Index, after pulling back from its June highs, must break through the short-term resistance zone of 12,769 to 13,333 points.

Failure to do so could send the index back toward the 9,975 to 10,554 range, representing a further 28% to 32% decline from its June peak.

However, he noted that if the index rapidly falls toward this lower support zone in the coming weeks, JPMorgan would view it as a 'tradable buying opportunity.'

As for hyperscalers, strategists say a breakout above their respective resistance zones would be an 'important bullish signal' after months of underperformance.

Hunter also listed key price levels for several major tech companies:

Alphabet must break above its 50-day moving average at $368 and the key level at $381, where the stock stabilized after a spring correction. Alphabet closed Thursday at $317.69.

Amazon (AMZN-US) must surpass the $251–$258 resistance zone to 'confirm a broader resumption of the bullish trend.' A breakout would set the next target at $278, the top of an upward-sloping technical trendline.

Meta (META-US) recently rebounded from the $525–$553 range but stalled near $669–$694. Hunter said a breakout above this range would constitute a 'strong bullish signal' for the stock.

Microsoft (MSFT-US) previously found key technical support near $350 but remains well below its intermediate resistance zone of $465–$493. Hunter outlined the next technical targets: first breaking the 50-day moving average at $400, then the 61.8% retracement level since May at $421, and finally the 200-day moving average at $438.