TOP STORY
💥 Is the AI Bubble Popping? And What You Should Do About It

🎃 Happy Sunday everyone!

👻 Who needs haunted houses… the scariest thing this Halloween was opening our portfolios.

😰 On Friday, the Nasdaq fell 2.9% for its worst day since June, ending a rough month that has investors asking whether the AI bubble is finally reaching its tipping point. Over the week, tech stocks were hit hard:

• 🔻 Google ($GOOG) fell -13%

• 🔻 Intel ($INTC) fell -25%

• 🔻 Amazon ($AMZN) fell -4%

• 🔻 Meta ($META) fell -4%

• 🔻 AMD ($AMD) slid -11% on Friday alone

• 🔻 And the neoclouds got hit the worst: CoreWeave ($CRWV) and Nebius ($NBIS) fell -11% and -9% on Friday… both now down more than 30% since the start of October

🤯 But despite the scary headlines, this was an AI selloff, not a market selloff. While the AI giants lost $5 trillion, the other 625 large US stocks actually gained about $1.3 trillion, with 9 of the 11 S&P 500 sectors finishing in the green this week. As a result, the S&P 500 only fell 0.6% despite the major crash headlines.

🤔 Which brings us to the real question: why is the market dumping the AI names specifically? Let’s look at four key reasons:

1️⃣ Google and Amazon put the cash burn on full display

• 📉 Google reported Wednesday night that Search growth slowed while free cash flow sank to negative $9.1 billion… giving the stock its worst post-earnings day ever (a story I covered in-depth here)

• 📦 Amazon followed Thursday night with a miss of its own… and its free cash flow now sits at negative $42.4 billion over the past year

• 🧮 Counting Meta's report last week, three of the four Big Tech giants now officially spend more cash than they make

2️⃣ Intel's guidance shock and Microsoft's spending "miss"

• 🔻 Intel guided next quarter billions below expectations (memory prices are choking its PC business), crashing the stock 29% on Friday

• 📉 Meanwhile, Microsoft spending $5 billion less than forecast knocked down Nvidia, AMD, and the rest of the chipmakers on fears of fewer orders

3️⃣ Elon Musk put the neoclouds on death watch

• 💀 Days before the earnings wave, Musk warned that 200+ neoclouds (companies like CoreWeave and Nebius that borrow billions to rent out Nvidia chips) face "guppy-level death and consolidation"… and called the idea of SpaceX buying the beaten-down ones "pointless"

• 🏦 His argument comes down to debt: lenders are getting wary of companies whose only business is AI data centers… SpaceX carries about $40 billion of GPU debt itself, but Musk says Starlink and rockets back it up

• 📉 The market seems to agree, with a Gartner report predicting 80% of neocloud providers could cease independent operations by 2030… and CoreWeave's bond yields climbing toward 16%

4️⃣ The week's rate news made everything worse

• 🏦 The Fed held rates on Wednesday… but two officials voted for a hike

• 🔥 Thursday's report showed September inflation heating up (oil is at $113/barrel), pushing December hike odds higher

• 💵 And with the 10-year Treasury yielding nearly 5%, investors can get paid to wait… making "trust us, the profits come later" from the AI players an increasingly harder sell

🫧 And all four of those reasons feed the same big question: is the ‘bubble’ actually popping? So let’s hear both sides… and then get into what you should actually do about it

😎 But first, a quick word from this week's sponsor, BMO ETFs!

🎙️ P.S. We have two new episodes on the Blossom podcast featuring flipflopfinance’s journey to $1M by 30 and how investing helped him when he faced a cancer diagnosis, and Aria’s 3 top stock picks for November!

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^{*See the BMO Global Asset Management disclaimer at the end of the newsletter}

TOP STORY
🫧 So… Is the Bubble Actually Popping? And What You Should Do About It…

⚖️ The AI bubble has been a constant debate for years now, but any time the market sinks, the debate heats back up - so let’s go over the new arguments and what they mean for you.

📉 The Case That It's Popping

😨 The sellers' case comes down to three arguments:

👎 1) The market has stopped rewarding even the good results

🗣️ Nomura strategist Charlie McElligott pointed out that the earnings reports exposed early weakness in several giants' core businesses… making investors question whether the aggressive AI spending can continue. Ken Mahoney, CEO of Mahoney Asset Management, put it more bluntly:

📉 And Wedbush's Sahak Manuelian says the crowd itself is turning:

🌵 2) More and more companies are fighting over investor dollars that are drying up

🧾 Companies are lining up to raise historic amounts of money for the AI buildout:

• 💰 Alphabet sold $85 billion of stock this summer, and Amazon has raised roughly $100 billion of debt in the past year

• 🤯 On Monday, Meta priced $25 billion of new shares, upsized from $22.5 billion on roughly 5x demand

• 🔄 Nvidia invested $3 billion into Meta's offering… meaning the AI trade's biggest supplier is helping fund its own customers' spending

🔮 Last week, even Jensen Huang, CEO of Nvidia, told us capital was the AI boom's scarcest resource: "The demand of the capital is much greater than the availability of the capital.”

💸 The problem is all those asks are landing just as the pool of investor dollars shrinks, which tends to lead to valuation needing to come down to entice investors.

🎬 Michael Burry of The Big Short fame (who's been betting against Nvidia and Palantir all month on his Substack) says the asks are about to get even bigger: Anthropic's IPO filing reveals roughly $537 billion in computing commitments… and with Amazon and Google acting as Anthropic's investors and its compute suppliers at the same time, he calls the whole web "catastrophically vulnerable" to any slowdown in growth.

📐 LSE economic researcher Charles Lister Smith studied three centuries of crashes for his new paper "Architecture of a Bubble"… and found every single one was preceded by exactly this: a flood of new stock hitting the market and exhausting buyers' cash.

🌙 3) Valuations are at historic highs, right as rates climb

📊 The valuation math doesn’t help: the S&P 500's Shiller P/E ratio (a measure of how expensive the market is) sits above 40… a level reached only three times in over 150 years of data. The previous two were right before the dot-com crash and in January 2022 (right before the downturn).

📈 The Case That It's a Healthy Reset

🙂 And now for the optimists' rebuttal…

📜 1) History says weeks like this are usually opportunities, not tops

🎃 Stock Trader's Almanac editor Jeff Hirsch calls this "Octoberphobia"… and he was literally buying the dip on Friday:

🗓️ History is on his side, from the October close of a midterm-election year through the following June, the S&P 500 has risen 19 times out of 19 since 1950, with a median gain of about 15%. For chip stocks it's 8-for-8 since 1994 with a median gain of 22%.

📜 It's not just a midterm thing either: the Nasdaq has had fifteen 5%+ down months over the past decade (like October's -5.3%), and on average it returned +24% over the following 12 months.

📊 Friday's trading even gave the buyers a small hopeful sign: the main semiconductor ETF briefly dipped below its July low ($460 vs. $464), then closed back above it at $472… a pattern traders often read as sellers running out of steam.

🔄 2) The money isn't leaving the market… It's rotating

💰 If investors were truly running from stocks, 9 of 11 sectors wouldn't have finished the week up 1% or more… money isn't fleeing the market, it's rotating. UBS made the same point to its clients on Friday:

🚀 3) Demand for AI is still exploding… the fight is over who can afford to serve it

📈 Every major cloud business accelerated this quarter: Azure at 48% (up from 42%), AWS at 39% (up from 37%, its fastest growth in nearly 5 years), Google Cloud at 103% (up from 82%), and even Intel's data center business grew 78%.

🔥 Amazon CEO Andy Jassy says AWS capacity is entirely sold out for 2026 and largely sold out for 2027, its backlog of signed customer commitments just jumped to $578 billion (from $496 billion last quarter)… and he thinks AWS could become a trillion-dollar revenue business within 5 to 10 years. Deepwater's Gene Munster summed up that side of the story in seven words:

💵 The problem is the bill: Microsoft, Google, Amazon, and Meta are projecting a combined $720+ billion of spending for 2026, and three of the four are already cash-flow negative. In other words, the market is repricing who can afford the race… not whether the race is real.

🏦 That's JPMorgan's read too: strategist Dubravko Lakos-Bujas argues Wall Street is now too pessimistic, writing that the Street is "underwriting the AI data center monetization case: elevated capex today should ultimately translate into higher revenue, stronger margins, and expanding cash flow."

🤷‍♂️ My honest take is both sides are arguing about different things. The worried camp is right that the market has stopped giving AI spenders the benefit of the doubt and that the capital crunch is a real concern.

✨ The optimists are right that the rest of the market is fine, and that demand for AI keeps accelerating.

🤔 Ok so we know why the crash happened and the reasons for and against the bubble continuing to pop… but what should you actually do about it? Before we dive into that… a quick word from our other sponsor this week, RBC iShares.

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SO WHA
👀 Ok… So What Should You Actually Do About It?

🧘 No one can tell you for sure what to do this week… but conveniently for us, we can learn from what Warren Buffett (one of the greatest investors of all time) has said and done during market crashes:

😰 Don’t Panic Sell

🐢 One of Buffett’s most famous quotes "The stock market is designed to transfer money from the active to the patient"… $100 invested in the S&P 500 in 1928 would be worth just under $1 million today, despite every crash, recession, and crisis along the way

📉 If we take the zoomed-out view, the red years are clearly the exception, and the market has recovered from every single one of them over the long term, so for long-term investors, market dips (no matter how long they last) are just a bump in the road.

🔍 2) Know what you actually own

🧺 This week punished the AI trade, not the whole market: 9 of 11 sectors actually rose. The problem is that most of us own more of the AI trade than we realize… the S&P 500 is now about 40% concentrated in its 10 largest stocks, so even a "diversified" index fund is a bigger AI bet than you might think

🔍 To check your exposure, the Sectors widget in Blossom PRO breaks your whole portfolio down by sector… and shows you how you stack up against the rest of the Blossom community. Here’s mine (you can see yours on the insights tab):

😴 3) Take the sleep test

💤 If this week kept you up at night, it might mean you've taken on more risk than you can handle. The goal is a portfolio you can hold through weeks like this one without flinching… not one you need to check every hour, so make sure to use this dip as a chance to be honest with yourself about your time horizon, risk tolerance, and goals.

⏳ So… is the bubble popping? I'll let Peter Lynch make the closing argument:

💧 The world’s not ending: the market is murkier than usual, which is a reason to double-check what you own and how much risk you’re carrying… not to liquidate your retirement savings.

💡 There's a reason every great investor says don't panic on bad-news weeks!

➡️ Next up, Apple and Palantir report earnings Monday, Shopify reports Tuesday, and the US midterm elections land Tuesday as well, so be sure to hop on Blossom during the week to see how other investors are playing it in real time!

🤖 P.S. If you want a quick audit of your portfolio (and personalized daily and weekly news recaps tailored to your holdings), make sure to check out Beevis, Blossom’s AI portfolio assistant, which I’ve spent extensive hours training (so it should have a similar tone and vibe to the buzz 🐝)!

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