Analysis: The current storage chip stock bubble burst did not trigger a systemic shock, with the S&P 500 only falling 1.6% from its all-time high.

BlockBeats News, August 2nd. According to The Wall Street Journal, the U.S. market has seen frequent sector-specific and theme-based bubbles in recent years, but these localized bubbles have usually not dragged down the overall stock market. The recent storage chip bubble rapidly expanded and burst within about 4 months, accompanied by intense volatility and a hedge fund crisis, yet the S&P 500 index is only 1.6% away from its all-time high, and the equal-weighted S&P 500 index even hit a new high last week. The pullback in AI-related stocks has currently been almost entirely offset by the rise in other sectors.

Over the past decade, the U.S. market has experienced bubbles in 3D printing, Chinese concept stocks, low volatility products, SPACs, clean energy, cannabis, space, cryptocurrency assets, and AI concept stocks. The Strategy index fell 83% from its peak, Trump media stocks fell 89%, and SK Hynix fell 55% before rebounding last Friday. Loose liquidity, speculative demand, and expectations for new technologies have collectively driven these bubbles, and in recent years, margin debt and leveraged ETFs have further amplified the volatility.

These localized bubbles have not significantly impacted the economy, mainly because most were not heavily leveraged with debt financing. After the bubbles burst, the losses were mostly borne by investors, and the banking system did not suffer a severe shock. Macro strategist Russell Napier stated that the banking system remains healthy, so there is always more credit available in the market to fuel the next round of bubbles.

However, AI investment is pushing the market into more dangerous territory. Data center spending is expected to reach $70 trillion in the next 4 years, and if the productivity gains from AI are not sufficient to support such massive investment, capital misallocation could severely harm the economy. As AI infrastructure construction increasingly relies on debt financing, if broader AI investment eventually proves to be a bubble, its burst could impact the financial system, leaving the overall market in a precarious position.