Analysis: The bursting of the memory chip stock bubble did not cause a systemic impact; the S&P 500 fell only 1.6% from its all-time high

Comparative news, according to the “Wall Street Journal” report, there have been frequent bubbles surrounding specific industries and themes in the US market in recent years, but the bursting of these local bubbles has generally failed to drag down the overall stock market. The current round of the memory chip bubble rapidly expanded and burst in about 4 months, along with sharp fluctuations and a hedge fund falling into crisis. However, the S&P 500 index is only 1.6% from its all-time high, and the weighted S&P 500 index reached a new high last week. The pullback in AI-related stocks is now almost completely offset by gains in other sectors.

Over the past decade, the US market has experienced bubbles such as 3D printing, Chinese concept stocks, low volatility products, SPAC, clean energy, cannabis, space, crypto assets, and AI concept stocks. Strategy fell 83% from a high point, Trump Media shares fell 89%, and SK Hynix fell 55% before rebounding last Friday. Easy funding, speculative demand, and expectations for new technology have all contributed to these bubbles, and margin debt and leveraged ETFs have further amplified volatility in recent years.

These partial bubbles did not have a serious impact on the economy, mainly because most of them were not funded by large amounts of debt. After the bubble burst, losses were mainly borne by investors, and the banking system was not significantly impacted. Macro strategist Russell Napier said the banking system is still healthy, so the market always has more credit to create the next bubble.

However, AI investments are moving the market into a more dangerous zone. Data center spending is expected to reach $7 trillion over the next 4 years, and if the productivity gains brought about by AI are insufficient to support this scale of investment, capital misallocation could seriously damage the economy. As AI construction becomes increasingly reliant on debt financing, once broader AI investment eventually turns out to be a bubble, its collapse may impact the financial system, and the overall market will be unavoidable.