AI Bull Market at a Key Crossroads, Semiconductor Market Returns to the Debate of "1995 or 2000"

BlockBeats News, June 23rd, The Market Ear published an article stating that the core battlefield of AI trading is shifting from large-cap tech stocks to semiconductors. However, this rally is beginning to exhibit characteristics of a historical speculative frenzy. The Philadelphia Semiconductor Index SOX is still running in a steep upward channel, and the strategy of buying the dip to the 21-day moving average has been effective so far this year. Nevertheless, this trade is becoming increasingly crowded. SOX is currently about 23% above its 50-day moving average, not yet at the extreme levels seen during the peak in May, but the short-term overbought conditions are quite evident.

Of more concern, the monthly RSI of SOX has risen to levels near the dot-com bubble era. This indicates that the semiconductor trend remains strong, but momentum has entered a range typically only seen during historical frenzies.

There is also a shift in fund flows. The ratio of SOX to the Magnificent 7 has risen to the highest level since 2019, indicating that investors are using semiconductors as a substitute for large-cap tech stocks to express the AI theme. Goldman Sachs data also shows that the net exposure of the Magnificent 7 has recently declined, implying that these tech leaders are becoming the "funding source" for AI chasing trades.

The volatility market is sending out more complex signals. The VXN/VIX ratio has recently increased significantly, indicating that the volatility of tech stocks is rising rapidly relative to the overall market volatility. The Market Ear believes that this combination of "spot price rise along with rising volatility" is not common, suggesting that the market is still strong, but the structure has become more fragile in both upward and downward movements.

Looking back at 1995, SOX also experienced a sharp rise that year, followed by a painful correction, but that did not end the bull market. The real frenzy stage did not unfold until the end of 1998. In other words, the current semiconductor market may only be experiencing early overheating in a larger cycle.

However, referencing 2000 poses higher risks. Comparing the MSCI Global Semiconductor Equipment Index with the NASDAQ performance from 1996 to 2003 shows similarities between the current semiconductor equipment sector's path and the late stages of the dot-com bubble. The author did not provide a clear conclusion but left the judgment to the market: the current trend carries both the shadow of a bull market continuation and the outline of a late-stage bubble.

The speculative fervor in the Korean market has further exacerbated these concerns. On high volatility days, the scale of trader Gamma rebalancing for Korean leverage and inverse ETFs may exceed 20% of the KOSPI's daily trading volume, implying that leverage products themselves may magnify market swings.

Simultaneously, there is a rare deviation between the stock market and interest rate volatility. A significant drop in bond volatility typically benefits stock market gains, but the S&P 500 Index has not yet fully reflected this signal. For bulls, this may mean there is still upside potential; for bears, it suggests that the current market may not fully price in the risk.